THE  ORGANIZATION 
OF  MODERN  BUSINESS 


WILLIAM.R.BASSET 


MAIN   LlBF7A^v,Ar5RIC 


DFP1 


THE  ORGANIZATION  OF 
MODERN  BUSINESS 


THE  ORGANIZATION  OF 
MODERN  BUSINESS 


BY 


WILLIAM  R.   BASSET 

14 

Author  of      When  the  Workmen  Help  You  Manage," 
Accounting  as  an  Aid  to  Business  Profits, ' '  etc. 


NEW  YORK 

DODD,  MEAD  AND  COMPANY 
1921 


COFTRIQHT  1920,  1921 
BY  MILLER,  FRANKLIN,  BASSET  AND  COMPANY 

Copyright  1920-1921,  By  McGraw-Hill  Company 
Copyright  1920,  By  Romer  Publishing  Company 
Copyright  1921,  By  Engineering  Magazine 
Copyright  1921,  By  A.  W.  Shaw  Company 
>^'-?AWY-A<3R»CUl_TURe  DEPT. 


IBoben    Companp 


BOOK      MANUFACTURERS 
RAHWAY  NEW     JERSEY 


FOREWORD 

A  DEFINITE  trend  in  business  methods  has  de- 
veloped during  the  past  few  years.  To  succeed 
permanently,  an  enterprise  must  move  in  har- 
mony with  this  trend;  to  resist  it  is  to  insure 
ultimate  failure. 

The  communist's  dream  of  production  for 
use  can  never  succeed  until  human  nature  is 
remade.  Profit  is  the  only  spur  to  production. 
But  the  concern  which  looks  first  to  profits  is  a 
beach-comber  existing  only  from  day  to  day. 
When,  temporarily,  as  in  a  depression,  the  op- 
portunities fail,  such  a  business  also  fails. 

The  permanently  successful  business  must 
first  serve  the  customer,  the  workman  and  the 
community.  Under  reasonably  good  manage- 
ment the  profits  will  surely  follow  and  will  be 
a  direct  measure  of  the  value  of  the  service  ren- 
dered. This  service  does  not  consist  of  willing- 
ness to  admit  that  "the  customer  is  always 
right, "  nor  promptly  to  send  out  a  man  to  re- 
pair a  product  that  should  have  been  better 
made  in  the  first  place.  It  consists  of  making 
a  product  best  fitted  to  its  use,  at  a  price  to 
attract  purchasers,  at  the  same  time  enabling 


520748 


Foreword 

proper  wages  to  be  paid  to  the  workmen  and  to 
leave  a  sufficient  profit  for  capital. 

To  do  this  requires  a  degree  of  standardiza- 
tion, and  production  in  large  quantities.  There- 
fore, the  plant  must  be  a  tool  carefully  designed 
to  produce  that  product  and,  as  a  rule,  nothing 
else.  Having  decided  what  product  to  make, 
that  product  must  be  made  as  well  and  as 
cheaply  as  possible  and  then  sold.  There  will 
be  no  room  for  the  concern  which  is  ready  to 
sell  whatever  the  whim  of  the  purchaser  dic- 
tates, and  then  make  it. 

The  author  of  this  book  looks  at  business  with 
the  cold  eye  of  the  industrial  engineer  whose 
sole  test  is  continuous  profits.  His  experience 
has  been  gained  in  consultation  with  more  than 
a  thousand  clients. 

He  does  not  favor  any  panacea,  but  he  does 
lay  down  in  detail  eleven  rules  for  managing 
a  business  which  his  experience  has  shown  are 
essential  to  permanency  and  profit. 


CONTENTS 

CHAPTER  PAGE 

I    How  BUSINESS  MUST  DEVELOP        .  1 

^il    FIRST  MAKE— THEN  SELL        .       .  18 

III  FINANCING  A  BUSINESS  FROM  THE 

INSIDE 41 

IV  WHAT  Is  A  FAIR  PROFIT?  .       .       .  62 
V    CASHING  IN   ON   THE   PLANT   You 

HAVE  .    i 82 

l/Vl    FALLACIES  OF  MANAGEMENT      .       .  103 

VII     CHOOSING  A  LABOR  POLICY        .       .  124 

VIII    GETTING  EXECUTIVE  LEADERSHIP     .  152 

IX     THE  USE  OF  MONEY  IN  BUSINESS    .  175 

X    PUTTING  A  BUSINESS  IN  BALANCE    .  199 

XI    CONTROLLING    YOUR     SOURCES    OF 

SUPPLY 225 

XH.    THE  ESSENTIALS  OF  A  SOUND  BUSI- 
NESS                                              .  249 


THE  ORGANIZATION  OF 
MODERN  BUSINESS 


THE  ORGANIZATION 
OF  MODERN  BUSINESS 

CHAPTER  I 

HOW   BUSINESS   MUST   DEVELOP 

A  WOMAN  bought  a  spool  of  cotton  at  a  big  de- 
partment store  and  asked  that  it  be  sent.  The 
merchant  did  not  complain;  he  duly  delivered 
the  spool  of  cotton.  But  he  delivered  it  in  state 
in  a  five-ton  truck  manned  by  three  men  just 
as  though  it  were  a  large  and  costly  piece  of 
furniture.  He  made  the  demonstration  that 
he  was  after;  he  got  plenty  of  publicity  and  he 
smashed  the  habit  of  having  tiny  articles  de- 
livered. 

Yet  in  the  business  of  to-day,  if  only  the 
relations  could  be  dramatized,  we  should  find 
no  end  of  ridiculously  great  powers  moving  tiny 
weights  without  attracting  comment.  The  com- 
parisons would  be  astonishing.  We  should  find 
large  and  enthusiastic  sales  forces  selling  large 


.;  The  Qrgam~ation  of  Modern  Business 

.orders  which  the  factory  filled  at  a  tiny  profit 
or  at  &  loss  simply  because  it  was  not  geared  to 
make  the  articles  that  had  been  sold.  We 
should  find  expensive  machinery  groping  for 
its  wage  through  scarcely  one-quarter  of  its 
possible  productive  hours.  We  should  find  that 
it  often  costs  three  times  as  much  to  sell  as  to 
make.  In  short  we  should  turn  up  no  end  of 
cases  of  the  grossest  profiteering  by  that  great- 
est and  most  cunning  of  all  profiteers — waste. 

Waste !  That  is  an  old  story.  Just  pick  up 
a  nut  or  a  bolt  here  and  there,  use  two  inches 
less  string  per  bundle,  stop  dotting  the  "i's" 
and  crossing  the  "t's"  and  you  save  $50,000  a 
year! 

Yes,  we  do  waste  a  deal  of  material.  Every 
dunce  knows  that.  But  the  big  wastes  are  not 
of  material.  The  big  wastes  are  rarely  those  of 
labor.  The  factory  that  uses  every  ounce  of 
material  and  has  the  most  conscientious  work- 
ers in  the  world  may  be  the  greatest  wastrel. 

The  important  wastes  arise  through  defec- 
tive organization — through  a  lack  of  balance 
between  the  parts  of  a  business  and  between 
the  business  and  its  markets.  They  are  hard 
to  detect.  They  may  more  easily  arise  through 
mistaken  zeal  than  through  carelessness.  Many 
a  "born  salesman"  has  thus  wrecked  his  com- 

2 


How  Business  Must  Develop 

pany.  I  have  in  mind  a  specialty  manufacturer 
who  took  unto  himself  a  sales  manager  noted 
for  "ginger";  that  manager  was  an  energetic 
and  really  good  salesman.  He  tested  the  mar- 
kets and  found  that  several  of  the  articles  which 
the  company  had  not  pushed  could  be  sold  in 
large  quantities.  He  made  a  drive  and  the 
orders  welled  in.  All  of  which  seemed  splendid, 
for  that  particular  article  carried,  according  to 
the  cost  sheets,  a  fair  profit  at  the  sales  price. 

The  orders  came  so  easily  that  the  manufac- 
ture of  the  new  leaders  had  to  be  reformed. 
The  company  began  to  make  them  in  quantity 
with  rosy  prospects;  their  other  lines  fell  off. 
At  the  end  of  the  first  year  the  company 
profit  was  smaller  than  had  been  expected.  At 
the  end  of  the  second  year  the  red  figures  ar- 
rived. Then  the  president  had  an  expert  inves- 
tigation made  and  it  turned  out  that  although 
the  fast-selling  articles  could  be  made  in  small 
quantities  at  a  profit,  they  could  not  be  so 
handled  as  principal  lines  because  the  former 
low  cost  had  been  gained  by  the  undue  distribu- 
tion of  the  factory  overhead  to  a  more  expen- 
sive line.  The  factory  manager  insisted  upon  a 
revision  of  costs  that  brought  up  the  price  of 
the  new  leaders,  the  sales  manager  left  in  a 
huff,  and  every  one  was  unhappy.  And  yet  no 

3 


The  Organization  of  Modern  Business 

one  was  to  blame.  The  company  simply  had 
not  been  organized  for  business. 

In  this  case  the  organization  was  palpably 
bad.  The  bigger  wastes  are  hidden  by  a  super- 
ficial efficiency  that  is  hard  to  penetrate.  They 
are  fundamental  and  they  are  of  the  highest 
importance  because  upon  the  elimination  of 
them  depends  tfoe  structure  of  society.  A  con- 
vincing argument  can  be  made  that  Socialism 
grows  out  of  waste. 

Let  us  take  a  lesson  from  the  social  revolu- 
tionist. 

That  sounds  like  an  absurd  sort  of  a  thing 
to  do,  for  about  all  that  one  ever  hears  of  revo- 
lutionary socialism  are  the  resounding  shouts 
of  those  who  would  destroy.  Indeed,  I  believe 
that  a  considerable  campaign  has  been  waged 
against  revolutionaries  on  the  ground  that  they 
steal  pianos,  have  bad  barbers,  and  are  rude  to 
women — at  least  I  have  seen  quite  a  number  of 
posters  and  articles  developing  these  themes. 
I  can  easily  conceive  of  a  strong  movement, 
especially  in  apartment  houses,  against  pianos. 
A  revolt  against  barbers  is  not  unthinkable  (it 
is  a  splendid  tribute  to  the  peaceful  qualities 
of  our  citizens  that  they  kill  so  few  barbers), 
but  the  unshaven,  plunging  beast  of  the  car- 
toons is  no  more  typical  of  even  the  most  ex- 

4 


How  Business  Must  Develop 

treme  social  revolutionaries  than  is  the  fat, 
be-whiskered  gentleman  with  the  swollen 
paunch  typical  of  the  capitalist,  or  the  up- 
standing gentleman  wearing  a  square  paper  cap 
typical  of  the  workman. 

The  odd  part  of  it  all  is  that  while  the  hench- 
men noisily  row,  our  real  leaders  of  industry — 
the  men  who  have  the  management  of  great 
affairs — are  trying,  in  their  way,  to  achieve 
exactly  the  same  result  as  are  the  real  social- 
istic leaders.  That  is  an  extraordinary  fact 
which  very  few  people  realize,  and  which  still 
fewer  will  grant  even  if  they  do  realize  it,  for 
the  terms  that  the  two  movements  use  are  very 
different.  They  do  not  speak  the  same  lan- 
guage and  each  is  surrounded  with  what  might 
be  called  the  " lunatic  fringe." 

The  employing  class  has  deployed  about  it 
a  number  of  stupid  people  who  always  insist 
that  whatever  is,  must  be.  They  are  the  men 
who  want  ever-lowering  wages,  who  are  the  last 
to  put  in  any  sort  of  mechanical  improvement, 
and  who  pride  themselves  upon  being  "  hard- 
headed.  "  The  other  lunatic  fringe  is  composed 
of  those  who  yell  of  the  rights  of  man,  who  are 
forever  on  the  street  corners  talking  about 
doing  less  work  for  more  money,  who  are  fond 
of  waving  red  flags  and  of  starting  riots. 

5 


The  Organization  of  Modern  Business 

The  lunatic  fringes  talk  incessantly  and  think 
sparingly,  and  together  they  tend  to  conceal 
that  goods,  not  money,  forms  the  basis  of  our 
life. 

The  largest  contributing  cause  to  reduced 
buying  power  of  money  is  that  the  war  took 
out  of  the  world  a  stupendous  amount  of  pre- 
viously accumulated  value,  and  then  demanded 
the  production  of  great  quantities  of  goods  to 
be  at  once  destroyed.  The  new  goods  were  pro- 
duced at  prices  that  had  little  relation  to  for- 
mer values — that  is,  workmen,  owners,  agents, 
everybody,  reveled  in  a  fool's  orgy  of  high 
profits  under  the  delusion  that  money,  not 
goods,  represented  purchasing  power.  When 
only  a  single  group  profiteers  the  results  are 
satisfactory  enough  unless  that  group  happens 
to  control  a  basic  industry  such  as  steel,  or 
coal,  or  transportation,  for  then  it  takes  a  long 
time  for  the  rest  of  the  community  to  adjust 
its  values  to  the  single  new  value  set  up  and 
the  process  is  so  gradual  that  no  one  notices 
it.  But  when  every  one  starts  hilariously  after 
the  big  money  and  gets  it  then  the  buying  power 
of  that  big  money  shrinks  like  a  $10  "all-wool" 
suit. 

Economic  truths  such  as  these  never  get 
across  in  words.  The  stomach  is  the  only 

6 


How  Business  Must  Develop 

teacher.  No  one  will  be  convinced  that  serving 
for  five  hours  at  $20  is  not  better  than  serving 
for  ten  hours  at  $10  until  he  discovers  that  al- 
though the  five  hours  of  service  are  rewarded 
by  a  bunch  of  paper  which  is  said  to  be  worth 
$20  those  same  five  hours  do  not  produce  $20 
worth  of  value — relating  the  value  to  the 
amount  of  food,  clothing,  and  shelter  the  money 
will  buy.  He  at  once  decides  that  $20  is  not 
enough  for  him;  he  does  not  examine  the 
service  he  is  rendering  for  $20  for  he  is  not 
accustomed  to  think  in  such  fashion.  It  is  only 
that  $20  does  not  buy  sufficient  food,  clothing, 
and  shelter.  He  then  arranges  that  instead  of 
$20,  he  shall  have  $40  for  his  five  hours.  Within 
a  little  while  the  $40  is  not  enough;  he  insists 
upon  more  and  more  money  until  finally  comes 
the  time  when  he  cannot  exchange  a  truckload 
of  money  for  a  pittance  of  food,  clothing,  and 
shelter.  After  he  has  trotted  his  big  wad  of 
money  around  enough  the  idea  begins  to  trickle 
through  that  perhaps  after  all  something  is 
queer  about  this  money  idea  and  that  what  he 
is  really  working  for  is  not  to  get  just  speci- 
mens of  the  governmental  art  of  engraving  but 
for  goods  that  he  can  consume  or  save  and  that 
the  money  was  interposed  merely  to  facilitate 
the  exchange  and  not  as  an  end  in  itself. 

7 


The  Organization  of  Modern  Business 

It  does  not  take  a  genius  to  calculate  that 
3%  on  an  investment  is  just  as  good  as  6%  if 
$30  will  buy  as  much  as  $60,  hut  it  seems  to 
take  pretty  nearly  a  genius  to  comprehend  the 
result  of  this  not  uncommonly  abstruse  calcu- 
lation. 

Because  we  have  distorted  the  expression  of 
values,  and  because  we  have  turned  things  up- 
side down,  out  of  it  all  is  emerging  the  lesson 
which  the  Bolsheviki  started  out  to  teach  and 
which,  indeed,  they  might  have  taught  had  they 
not  got  lost  on  the  way  trying  to  prove  that  all 
men  are  equal. 

The  controlling  thought  of  the  social  revolu- 
tion is  that  a  gross  inequality  exists  in  the  dis- 
tribution of  the  world's  goods  because  produc- 
tion is  adjusted  to  a  standard  of  money  instead 
of  need.  That  the  real  purpose  of  production 
is  to  provide  things  to  use,  that  there  can  be 
no  other  purpose,  and  that  the  capitalistic 
world  has  been  trying  to  produce  not  for  use 
but  according  to  an  arbitrary  and  wholly  arti- 
ficial standard  of  money.  Therefore,  they 
would  right  this  condition  by  abolishing  all  pri- 
vate property,  giving  to  each  man  the  right  to 
use — that  is,  they  would  pay  for  production  in 
kind  and  thus  only  enough  would  be  produced 

8 


How  Business  Must  Develop 

to   supply  a   standardized  need   of  the   com- 
munity. 

They  say  that  under  the  present  system,  a 
manufacturer  produces  a  certain  number  of 
articles  at  a  certain  price  and  without  regard 
to  the  needs  of  the  community,  that  he  sells 
those  articles  at  that  price  as  long  as  the  com- 
munity will  buy.  When  the  community  slacks 
its  buying  he  shuts  down  his  factory  until  the 
community  has  bought  up  his  stock.  Then  he 
again  begins  to  manufacture.  When  he  shuts 
down,  his  workers  starve  and  the  articles  he 
made  are  held  for  sale  on  an  arbitrary  scale  of 
price  and  are  thus  always  beyond  the  possibility 
of  acquisition  by  the  average  worker.  Under 
the  Communist  program  the  whole  organiza- 
tion of  society  would  change.  Instead  of  hav- 
ing John  Smith  make  hosiery  and  sell  it 
through  a  chain  of  agents,  jobbers,  and  retail 
merchants  to,  let  us  say,  the  employees  of  John 
Jones,  who  are  making  shoes  and  selling  them 
through  a  chain  of  agents,  jobbers,  and  retail 
merchants  to  the  employees  of  John  Smith, 
your  social  reformer  would  have  these  two  fac- 
tories owned  by  the  State,  would  have  them 
make  for  the  State,  and  have  the  State  dis- 
tribute their  products  directly  to  those  who 

9 


The  Organization  of  Modern  Business 

need  them  and  not  merely  to  those  who  could 
buy  them.  Every  one  would  be  certain  always 
of  having  enough  socks  and  shoes  but  never  too 
many,  and  the  employees  of  the  respective  fac- 
tories would  no  longer  be  employees  but  would 
be  merely  members  of  the  community  helping 
to  serve  the  needs  of  the  community — which, 
when  you  finally  analyze  it,  is  all  that  they  do 
anyway. 

The  "r evolutionary "  part  arises  through 
the  attempt  to  abolish  a  certain  desire  on  the 
part  of  many  individuals  to  hang  on  to  their 
property.  The  whole  scheme,  though  perfect 
in  theory,  involves  a  greater  faith  in  the  un- 
selfishness of  society  than  the  study  of  human- 
ity justifies.  We  are  trained  to  gage  our  re- 
spective worths  in  the  world  more  or  less  by 
the  size  of  our  respective  pocketbooks  rather 
than  by  the  acclaim  that  we  receive.  This  is 
true  only  to  a  degree,  however ;  many  men  pre- 
fer eminence  to  wealth  and  many  men  after 
they  have  gained  wealth  try  to  achieve  emi- 
nence. Men  never  gain  real  acclaim  through 
the  possession  of  money.  There  has  never 
been  a  multi-millionaire  who  attained  the  posi- 
tion of  Colonel  Eoosevelt.  The  more  money  a 
man  has  the  less  he  cares  for  it,  and  a  friend 
who  has  closely  studied  the  working  of  the 

10 


How  Business  Must  Develop 

radicals  tells  me  that  whenever  a  so-called 
"Red"  is  brought  before  a  jury  his  lawyers 
always  try  for  a  jury  of  rich  men  on  the  ground 
that  the  rich  man  is  willing  to  judge  fairly  the 
propaganda  to  redistribute  wealth  while  the 
comparatively  poor  man  is  not.  But  because 
we  are  what  we  are  and  have  deeply  ingrained 
in  us  the  desire  to  acquire  and  to  hold  prop- 
erty, it  is  the  dollar  that  will  be  used  to  score 
the  business  game,  and  especially  since,  with- 
out changing  the  method  of  scoring,  the  results 
in  the  way  of  general  happiness  can  be  the  more 
quickly  achieved  than  by  any  radical,  revolu- 
tionary play. 

Bolshevism  as  a  term  of  violence  will  pass. 
One  cannot  keep  on  "raising  Cain"  forever, 
but  the  underlying  principles  of  the  social  re- 
form are  gaining  ground  from  year  to  year,  and 
they  must  and  will  prevail,  for  the  thought  is 
gradually,  through  study,  being  brought  home 
that  we  have  not,  generally  speaking,  any 
greater  realization  of  what  the  sub-division  of 
labor  and  the  application  of  power  have  done 
to  our  social  life  than  Watt  had  of  the  steam 
engine  or  Galileo  of  electricity. 

Take  a  few  glaring  instances  as  shown  by 
our  very  terms  of  expression.  The  words 
"overhead,"  "burden,"  or  "expense"  are  ap- 

11 


The  Organization  of  Modern  Business 

plied  to  the  charges  that  go  into  a  product  be- 
cause of  other  than  the  actually  consumed  labor 
and  material.  The  terms  that  we  use  connote 
that  they  were  considered  superfluous,  that  the 
product  properly  should  carry  only  direct  costs, 
and  that  everything  else  arose  through  some 
fault  which  it  was  the  duty  of  management 
somehow  or  other  to  overcome.  Yet  to-day  we 
are  learning  that  actually  cheaper  production 
is  often  to  be  gained  by  vastly  increasing  this 
very  expense  which  was  once  thought  to  be  un- 
necessary for  the  reason,  among  others,  that 
into  this  expense  goes  management,  and  man- 
agement is  the  biggest  thing  in  industry.  We 
may  find  that  the  most  expensive  way  of  doing 
work  is  that  in  which  the  smallest  possible 
charges  for  overhead  enter. 

Take  another — shutting  down  the  plant. 
Your  old  time  manufacturer  prided  himself  on 
never  having  a  man  on  the  payroll  who  was 
not  producing,  and  he  insisted  that  men  in- 
stantly be  laid  off  when  work  slackened,  and 
that  if  the  work  became  too  low  the  plant  be 
shut  down.  This  was  his  idea  of  economy— 
the  obvious  economy.  It  is  still  the  idea  in  cer- 
tain industries  which  are  celebrated  for  labor 
disorder  and  shifting  product  prices,  as  coal 
and  iron.  Now,  however,  a  few  of  the  more 

12 


How  Business  Must  Develop 

astute  manufacturers  know  that  laying  off  peo- 
ple or  shutting  down  a  plant  is  an  invitation  to 
bankruptcy  and  that  if  they  hope  legitimately 
to  come  out  on  the  right  side  of  the  ledger,  they 
must  fight  with  all  that  is  in  them  to  keep  the 
wheels  turning  with  new  orders  even  if  those 
orders  have  to  be  taken  at  less  than  cost.  They 
know  that  they  will  lose  less,  manufacturing 
at  somewhat  less  than  cost,  than  by  shutting 
down  altogether. 

Take  salesmanship.  Years  ago  we  did  not 
sell.  We  provided  things  and  people  came  and 
bought  them.  Then  it  was  discovered  that  very 
frequently  people  either  did  not  know  what  they 
wanted  or  were  careless  of  their  needs.  They 
would  not  buy — they  had  to  be  sold  to.  Thus 
evolved  salesmanship.  In  the  further  course 
of  its  evolution  it  was  discovered  that  people 
might  systematically  be  induced  to  buy  that 
which  they  neither  needed  nor  wanted,  and  then 
developed  the  type  of  smart  salesman  who 
prided  himself  upon  being  able  to  "sell  any- 
thing. "  For  a  time  salesmanship  was  the 
thing — if  one  only  evolved  a  great  selling  or- 
ganization then  everything  else  would  care  for 
itself.  The  "  experts "  made  a  ritual  of  sales- 
manship. If  the  salesman  only  made  the  proper 
hand  and  face  movements  at  the  same  time  re- 

13 


The  Organization  of  Modern  Business 

citing  thoroughly  tested  and  recommended  in- 
cantations then  his  victim  had  to  buy.  But 
trouble  came.  The  more  successful  sorcerers 
would  sell  more  than  their  factories  could  de- 
liver. The  dejected  individuals  who  had  been 
hibernating  in  the  factories  modestly  suggested 
that  perhaps  selling  was  not  a  thing  in  itself 
but  a  method  of  disposing  of  the  factory 
product.  During,  and  right  after  the  War  the 
cry  was  for  production  engineers — for  people 
who  would  get  the  goods  out,  who  would  fulfil 
the  sales  promises.  The  next  phase  of  the  cycle 
is  always  one  where  concerns  find  themselves 
producing  more  than  they  can  sell. 

I  shall  revert  to  these  subjects  again  in  de- 
tail. I  am  now  giving  these  illustrations  only 
to  demonstrate  how  little  regard  and  how  little 
true  comprehension  we  have  of  the  need  for 
coordinating  industry — how  we  have  been,  in 
a  way,  monkeying  with  the  buzz-saw. 

I  am  not  expressing  a  lone  and  individual 
opinion  generated  amidst  philosophical  calm. 
My  opinion  has  been  formed  from  a  close  per- 
sonal and  organization  contact  with  more  than 
fifteen  hundred  factories.  The  American  So- 
ciety of  Mechanical  Engineers  has  stated  simi- 
lar conclusions  in  a  set  of  principles : 

1.    Social  and  industrial  unrest  results  from 

14 


How  Business  Must  Develop 

the  fact  that  human  relations  have  not 
kept  step  with  economic  evolution. 

2.  Sharp  social  or  industrial  disputes  are  no 
longer  private.    Society  is  affected,  there- 
fore such  cases  must  be  subject  to  the  de- 
cision of  authorities  based  upon  intrinsic, 
not  arbitrary,  law. 

3.  Every  important  enterprise  must  adopt 
competent   productive   management,  un- 
biased by  special  privilege  of  capital  or 
of  labor,  and  disputes  must  be  submitted 
to  authorities  based  upon  intrinsic  law. 

Well,  what  of  it!  What  difference  does  it 
make  to  me!  I  have  been  getting  by  through 
these  years,  why  can't  I  keep  right  on  getting 
by! 

It  makes  just  this  difference.  The  highest 
business  thought  is  rapidly  becoming  scientific. 
The  conviction  has  entered  into  the  minds  of 
nearly  all  students  that  whereas  we  have  been 
fooling  along,  manufacturing  for  money,  we 
must  really  manufacture  for  service,  that  the 
true  selling  price  is  not  what  the  traffic  will  bear 
but  is  based  upon  cost,  and  that  the  man  who 
does  not  realize  this  and  does  not  so  shape  his 
business  that  its  various  sections  will  exactly 
coordinate  cannot  possibly  compete  with  the 
man  who  puts  the  scientific  idea  into  practise. 

15 


The  Organization  of  Modern  Business 

Or,  in  terms  of  money,  profit  succeeds  service. 
And  no  service,  no  profit! 

Let  me  qualify  this  word  "  service. "  It  has 
been  hideously  abused  and  cheapened.  Fre- 
quently it  is  used  to  describe  palaver,  and  bun- 
combe, and  costly  furniture,  and  servile  clerks, 
and  the  other  scenery  that  commonly  surrounds 
putting  over  something  at  a  high  price;  or 
again  it  may  mean  the  free  repairing  of  an 
article  during  a  certain  period,  most  of  which 
repairing  would  not  be  necessary  had  the  ar- 
ticle been  made  right  in  the  first  place. 

Eeal  service  consists  in  giving  the  best  pos- 
sible article  to  the  community  at  the  fairest  pos- 
sible price,  at  the  same  time  providing  adequate 
and  adequately  paid  labor  and  a  proper  portion 
of  profit  for  the  capital  invested. 

There  is  nothing  contradictory  between  a  low 
price  to  the  public,  a  fair  wage  to  the  workers, 
and  a  fair  profit  to  the  owners.  If  the  bal- 
ance wheel  of  a  business  is  properly  adjusted 
these  several  wholly  desirable  results  will  be 
achieved.  If  it  is  not  adjusted  they  will  not 
be  achieved.  Only  skilled  planning  and  fore- 
sight can  make  the  adjustment.  Any  one  who 
does  not  care  whether  or  not  he  reaches  all  of 
these  several  goals  might  as  well  get  out  of 

16 


How  Business  Must  Develop 

business  and  save  money.  For  eventually  lie 
must  lose. 

The  man  who  has  coordinated  to  produce 
values  is  the  man  who  will  stay  in  business. 
For  real  values  do  not  change.  A  pair  of  shoes, 
for  instance,  has  a  definite  economic  value;  so 
has  a  piece  of  land  that  will  produce  a  certain 
crop.  A  man  with  a  ham  is  better  off  than  a 
man  with  a  van  of  paper  money  that  will  not 
buy  it.  No  financial  legerdemain  can  grow 
wheat  on  an  acre  of  greenbacks. 

The  man  who  has  values — who  has  a  farm 
that  will  produce,  a  factory  that  will  produce 
—has  something  which  renders  him  independ- 
ent of  financial  changes,  for  then  he  is  able  to 
exchange  goods  for  goods  which  is  what  we 
are  going  to  get  around  to,  although  hardly  in 
such  an  obvious  fashion  as  I  have  stated. 

Now,  it  may  seem  that  we  are  wandering 
from  our  thought  of  service,  and  from  our 
thought  of  coordination,  and  getting  into  the 
speculative  realms.  We  are  doing  nothing  of 
the  kind.  I  am  merely  trying  to  sketch  in  the 
background  to  show  the  reason  for  business,  to 
show  why  and  how  business  must  develop.  I 
say  must  develop  because  it  is  so  developing. 


17 


CHAPTER  II 

FIRST   MAKE — THEN   SELL 

You  can  walk  into  any  first-class  tailoring 
establishment  in  London  at  any  time  before 
noon,  order  any  kind  of  a  suit,  and  if  you  are 
in  a  hurry  you  can  have  it  fitted  during  the 
afternoon  and  delivered,  complete  and  ready  to 
wear,  before  eight  o'clock  in  the  evening.  Is 
not  this  a  rare  combination  of  speed  and  effi- 
ciency that  should  shame  an  American?  No 
matter  what  the  emergency,  an  American  tailor 
will  not  even  in  the  dullest  times  agree  to  make 
and  deliver  under  three  or  four  days. 

The  English  shop  has  its  men  on  the  second 
floor;  they  do  the  major  part  of  their  work  by 
hand,  and  if  you  are  in  a  hurry  it  is  only  a  mat- 
ter of  shifting  the  men  from  whatever  they  hap- 
pen to  be  doing  to  your  work.  In  the  American 
tailor  shop  very  few  of  the  workmen  would  be 
on  the  premises — probably  none  other  than  the 
cutters  and  fitters.  The  cut  materials  would  be 
sent  out  to  be  sewn  together.  Some  two  or 
three  men  would  work  on  the  trousers,  several 

18 


First  Make— Then  Sell 

more  on  the  coat,  and  still  others  on  the  waist- 
coat. The  finished  suit  would  represent  the 
combined  operations  of  probably  fifteen  people. 
Most  of  these  people  would  work  by  hand  or 
with  easily  adjusted  machines.  These  fifteen 
would  turn  out  among  them  in  a  day  many  more 
suits  than  would  the  English  tailors  working 
a  man  or  two  to  a  suit.  But  the  American 
tailor  could  not,  without  extraordinary  diffi- 
culty get  a  single  suit  through  all  of  them  in 
the  one  day  and  the  cost  of  such  an  emergency 
mobilization  would  exceed  the  price  that  he 
could  legitimately  ask  for  the  garment. 

Now,  instead  of  the  small  American  tailor, 
take  a  large  factory  making  standardized 
ready-to-wear  clothing.  They  turn  out  the  fin- 
ished suit  assembled  in  perhaps  less  than  an 
hour  in  the  aggregate  though  the  time  may  have 
been  put  in,  in  fractions.  They  have  expert 
cutters  and  fitters,  and  as  far  as  personnel  is 
concerned  are  better  equipped  to  complete  a 
special  suit  in  a  hurry  than  the  English  shop 
could  hope  to  be.  Their  buying  capacity  is 
large,  they  do  much  machine  work,  and  they 
can  sell  a  suit  for  less  than  the  cost  of  the  ma- 
terial to  the  ordinary  tailor.  Suppose  I  walk 
into  the  factory  and  ask  for  a  suit  cut  accord- 
ing to  some  fancy  of  my  own  but  out  of  mate- 

19 


The  Organization  of  Modern  Business 

rial  which  the  factory  already  has  in  stock.  I 
want  that  suit  by  evening.  Suppose  the 
manager  were  fool  enough  to  grant  my  request. 
What  would  happen?  This  suit  of  mine  would 
have  to  be  routed  through  specially.  Whenever 
it  came  to  a  department  at  least  one  machine  in 
that  department  would  have  to  be  taken  from 
the  work  on  which  it  was  engaged,  readjusted, 
and  the  operator  instructed.  When  the  adjust- 
ments had  been  made  and  instructions  deliv- 
ered the  particular  operation  required  on  my 
suit  would  take  but  a  few  minutes  or  seconds, 
and  then  the  machine  would  be  readjusted  and 
go  on  with  the  volume  work  on  which  it  had 
been  engaged.  This  procedure  would  have  to 
be  repeated  through  perhaps  a  score  or  more 
of  operations  and  by  the  time  the  suit  was  done 
the  mere  making  would  have  cost  the  firm  any- 
where up  to  a  thousand  dollars! 

The  Englishman  could  have  made  that  suit 
at  his  regular  price  and  at  a  profit.  The  Ameri- 
can tailor  might  have  made  it  at  three  times 
his  regular  price  but  without  a  profit,  while  the 
American  company,  highly  organized  for  work 
and  capable  of  giving  the  highest  quality  of 
service  at  the  least  possible  cost,  could  not  have 
made  that  suit  at  any  price  within  reason. 

On  the  other  hand  the  English  tailor  would 

20 


First  Make— Then  Sell 

have  been  at  sea  if  some  one  had  ordered  from 
him  5,000  size  40  sack  suits.  It  would  have 
taken  him  months  to  turn  them  out  and  al- 
though he  might  buy  his  cloth  much  cheaper 
than  the  American  and  pay  his  tailors  less  he 
could  not  seriously  compete  with  the  American 
clothing  manufacturer.  To  the  one  it  would 
have  been  an  epochal  order ;  to  the  other  a  mere 
incident. 

Comparing  these  three  examples  we  have 
before  us  in  a  crude  way  the  development  of 
manufacturing  and  a  hint  of  what  a  new  and 
extraordinary  force  is  contained  in  the  applica- 
tion of  power  arid  the  sub-division  of  labor,  and 
especially  the  new  role  as  assumed  by  manage- 
ment. 

In  the  case  of  the  hand  workers,  management 
meant  merely  providing  them  with  work  and 
keeping  them  in  general  order.  Their  only  co- 
operation was  in  not  getting  in  one  another's 
way.  With  the  American  custom  tailor,  man- 
agement grew  apace  for  the  garments  had  to 
be  assigned  to  the  several  workers  on  some 
basis  by  which  the  various  operations  would  be 
done  more  or  less  sequentially,  in  order  that 
one  man  might  not  be  too  busy  and  another 
idle.  In  either  case,  however,  if  there  were  no 
garments  to  make  then  there  was  no  one  to 

21 


The  Organization  of  Modern  Business 

pay — that  is,  the  labor  cost  ceased  with  the 
work  and  what  little  machinery  might  be  em- 
ployed was  so  inexpensive  that  its  idleness 
could  not  cut  any  considerable  figure.  But  with 
the  big  clothing  manufacturer  a  new  and  very 
important  element  enters.  That  company  has  a 
plant  representing  much  money.  It  has  a  deal 
of  machinery  and  although  the  individual  ma- 
chines may  not  be  of  a  very  expensive  charac- 
ter their  aggregate  value  is  large.  If  that  com- 
pany stops  work  for  lack  of  orders,  their 
charges  do  not  cease.  Only  the  wages  cease. 
The  interest  on  the  plant  keeps  right  along  and 
so  do  the  salaries  of  the  managers  and  of  the 
foremen.  The  skilled  direction  cannot  be 
picked  up  off  the  street  whenever  needed.  It 
must  be  trained  and  kept.  Idleness  does  not 
represent  only  a  loss  of  profit ;  it  calls  for  out- 
of-pocket  payment.  The  charges  of  idleness 
are  positive,  not  negative. 

And  another  very  great  difference  is  noted. 
The  individualistic  shop  can  do  what  it  pleases, 
but  the  factory  is  limited  in  scope.  The  ma- 
chinery has  been  attuned,  so  nicely  attuned,  to 
a  certain  kind  of  work  that  even  a  compara- 
tively slight  change  in  operations  will  destroy 
the  profit  for  the  time  being  while  an  emergency 
suit  of  clothing  such  as  I  mentioned  can  hardly 

22 


First  Make— Then  Sell 

be  undertaken  at  any  price.  The  adjustments 
are  more  expensive  than  the  product. 

Thus  we  begin  to  grasp  what  is  becoming  a 
cardinal  principle  of  industry — that  one  cannot 
profitably  sell  and  then  make,  but  one  must  so 
coordinate  the  making  and  selling  as  to  form  a 
production  scheme  for  the  establishment.  This 
is  the  gospel  of  volume  production ;  when  real- 
ized in  its  fulness  it  will  be  discovered  to  mark 
out  the  metes  and  bounds  of  selling,  the  kind 
of  machinery,  the  kind  of  labor  employed,  the 
planning  and  location  of  the  building,  and,  if 
one  cared  to  accept  some  current  theories,  it 
would  determine  the  shape  of  the  nose  of  the 
office  boy  who  ought  to  be  employed. 

The  old  manufacturing  was  opportunist. 
When  the  plant  investment  was  small  and  every 
worker  was  skilled  it  did  not  make  much  dif- 
ference what  kind  of  an  order  came  in  so  long 
as  it  was  within  the  general  scope  of  the  firm's 
experience.  A  certain  universality  became  a 
matter  of  pride  as,  for  instance,  the  English 
tailor  I  have  mentioned  would  have  been  in- 
sulted if  any  one  had  suggested  that  perhaps 
he  did  not  know  how  to  make  a  pair  of  riding 
breeches,  while  the  great  clothing  factory  would 
just  as  promptly  answer  that  it  could  not  make 
a  pair  of  riding  breeches  but  it  might  make  five 

23 


The  Organization  of  Modern  Business 

or  ten  thousand  pairs — which  would  be  a  touch 
of  the  same  pride,  for  probably  that  clothing 
factory  could  not  learn  to  make  riding  breeches 
at  a  profit  unless  it  made  many  more  than  ten 
thousand.  If  the  sales  manager  of  that  factory 
sold  ten  thousand  pairs  of  riding  breeches  and 
the  production  manager  suggested  that  al- 
though the  price  seemed  high  enough  to  be 
profitable  he  was  very  doubtful  if  he  could 
make  them  at  a  profit,  there  would  be  a  tre- 
mendous rumpus  throughout  that  establish- 
ment, and  if  the  president  happened  to  be  a 
salesman,  as  probably  he  would  be,  that  pro- 
duction manager  would  be  informed  that  it  was 
his  business  to  get  out  what  the  sales  depart- 
ment sold  and  not  to  indulge  in  cost  specula- 
tions. 

And  probably  that  sales  manager  would  get 
his  way  and  keep  right  on  getting  his  way  until 
a  competitor  appeared  who  made  but  one  thing, 
or  at  the  most  a  few  things,  and  stuck  to  his 
standards.  Then  the  sales  manager  would  dis- 
cover that  he  could  not  compete  against  the 
newcomers  on  certain  articles  and  would  stop 
making  them  and  at  the  end  of  the  year  it  would 
be  discovered  that  the  place  had  been  run  at  a 
loss.  For  more  than  likely  the  company,  hav- 
ing given  itself  up  to  the  selling  side,  would 

24 


First  Make— Then  Sell 

have  been  counting  the  gross  profit  of  the  year 
and  would  not  have  investigated  the  profit  per 
line. 

A  striking  case  of  this  occurred  with  a  spe- 
cialty manufacturer  making  a  large  line.  On 
a  certain  type  of  article  which  we  may  call  "  A" 
they  took  old  machines  of  other  makers  in  ex- 
change. Some  of  the  second-hand  stuff  they 
sold  but  the  most  of  it  they  junked,  for  they 
thought  their  profits  were  so  high  that  they 
could  make  the  allowance  with  profit.  On 
another  line  "B"  they  had  no  exchanges  and 
that  line  they  sold  at  what  they  thought  was  a 
good  profit.  But  "A"  was  the  leader.  Another 
company  came  into  the  field  and  cut  out  the 
market  on  the  "B"  goods  by  offering  some- 
thing which  was  not  only  better  but  much 
lower  in  price.  At  the  end  of  the  year  the 
"A"  sales  were  record-breaking — but  the  com- 
pany had  lost  money !  A  cost  accountant  made 
an  examination;  he  found  that  every  sale  on 
the  "A"  line  with  an  exchange  had  been  made 
at  a  loss  and  that  the  company  had  come 
through  previously  only  because  they  had 
taken  an  exorbitant  profit  on  the  "B"  goods. 
The  moment  a  business-like  competitor  came 
into  the  field  they  were  beaten  on  the  "B" 
stuff. 


The  Organization  of  Modern  Business 

Or  take  a  rubber  company  doing  an  enormous 
business.  They  maintained  branches  every- 
where and  insisted  that  their  dealers  carry  full 
lines.  The  dealers  took  the  full  lines  but  in- 
stead of  stocking  they  found  that  it  was  much 
cheaper  to  carry  only  small  quantities  and  re- 
place them  as  sold.  Some  dealers  would  order 
three  or  four  times  a  day;  one  dealer  with  a  bill 
on  an  average  of  $4,000  a  month  bought  on  an 
average  of  600  times  a  month.  It  cost  $1.28 
to  put  an  order  through  the  books.  That  is  not 
high;  it  costs  the  best  of  the  savings  banks 
about  a  dollar  to  make  a  deposit  or  withdrawal 
entry.  But  having  so  many  small  orders  loaded 
with  bookkeeping  charges  ate  into  the  com- 
pany's profits.  They  found  that  because  they 
had  encouraged  the  idea  that  a  dealer  should 
order  with  a  view  to  keeping  his  stock  at  a  pre- 
determined figure,  that  they  lost  money  on  40% 
of  all  their  orders. 

It  is  not  what  you  can  sell  that  counts — but 
what  you  can  sell  at  a  profit.  That  profit  can- 
not be  found  by  lumped  figures  but  only  through 
detailed  costs  in  connection  with  time  studies. 
These  costs  and  scientific  studies  will  not 
merely  show  the  costs  but  they  will  also  point 
out  ways  for  improvement,  and  highly  spe- 
cialized machinery  and  modes  of  work  will  be 

26 


First  Make— Then  Sell 

evolved.  And  when  you  have  attained  this  spe- 
cialization you  will  discover  that  the  whole  sell- 
ing plan  must  be  changed,  because  to  make  at 
the  least  cost  involves  the  smallest  possible 
number  of  articles  repetitively  manufactured  to 
a  standardized  design.  Therefore  to  go  back 
to  the  sales  manager  of  the  clothing  factory, 
it  is  unlikely  that  those  riding  breeches,  if  the 
factory  were  well  organized,  could  be  taken  at 
a  profit  unless  a  department  were  opened  for 
them — that  is,  unless  another  division  were  to 
be  established  for  riding  breeches.  And  I  say 
this  in  the  full  knowledge  that  clothing  estab- 
lishments do  not  commonly  attain  a  very  high 
degree  of  specialization  and  that  they  have  not 
fully  grasped  the  meaning  of  modern  manufac- 
ture. 

We  introduce  machinery  for  only  one  pur- 
pose— to  make  more  cheaply  than  is  possible  by 
hand.  An  American  road  contractor  finds  a 
steam  shovel  cheap ;  he  would  not  find  it  cheap 
in  China  because  he  could  employ  some  thou- 
sands of  hand  workers  at  next  to  nothing  a 
day.  To-day,  in  America  especially,  and  to  a 
degree  all  over  the  world,  the  worker  is  expen- 
sive and  demands  certain  rights.  That  will 
cause  even  more  machinery  to  be  introduced 
into  our  life — for  the  way  to  overcome  high 

27 


The  Organization  of  Modern  Business 

wages  is  to  get  more  out  of  a  man  and  the  way 
to  get  more  out  of  him  is  to  help  him  with  the 
best  tools — which  mean  power  tools.  The  most 
efficient  tool  is  one  especially  made  or  adjusted 
for  the  work  in  hand.  The  most  efficient 
worker  is  the  one  who  masters  all  of  one  sub- 
ject or  operation.  The  specialized  tool  is  but 
an  expense  unless  it  be  employed  upon  the 
work  for  which  it  was  designed.  It  is  a  great 
expense  indeed  if  left  idle.  Therefore  it  has 
not  only  to  be  kept  continuously  employed  but 
employed  at  the  work  for  which  it  is  best  suited 
which  in  turn  means  standardized  production. 
Thus,  without  knowing  it,  Nature  is  forcing 
us  to  the  "twelve  months "  work  idea.  The 
natural  progress  of  industry  makes  impossible 
the  intermittent  work  against  which  the  Bol- 
sheviki  and  other  social  reformers  complain 
and  which  is  at  the  very  root  of  the  objections 
to  that  capitalistic  scheme  of  affairs  under 
which  we  live.  When  shutting  down  fell  largely 
upon  the  workers,  they  had  cause  to  complain; 
now  shutting  down  falls  just  as  severely  upon 
the  owner.  The  owner  cannot  generally  make 
and  then  hold  for  a  price  because  by  the  time 
he  has  sold  off  his  stock  the  interest  charges 
and  depreciation  upon  the  plant  and  the  con- 
tinuing expense  of  his  organization  have  com- 

28 


First  Make— Then  Sell 

bined  to  eat  up  more  than  the  profit  he  hoped 
to  get.  Thus  it  is  to  the  common  advantage  of 
the  worker  and  the  owner  to  keep  the  plant  in 
operation. 

The  great  wastes  of  idle  capital  are  just  be- 
ginning to  be  realized.  Extensive  researches 
made  by  industrial  engineers  and  which  are 
confirmed  by  my  own  experience  are  to  the 
effect  that  because  of  the  inexpert  selling  of  a 
product — which  usually  means  trying  to  sell  at 
too  high  a  price  or  selling  that  for  which  the 
factory  is  not  equipped  to  make,  thereby  neces- 
sitating changes  in  arrangements  of  work,  or 
faulty  arrangements  by  which  some  machines 
have  too  much  and  others  too  little  to  do — the 
average  machine  in  a  factory  is  not  working 
more  than  one-third  of  its  time.  If  the  capital 
which  bought  that  machine  expects  to  get  a  fair 
return  it  must  get  it  at  the  expense  of  the 
worker  and  of  the  public — taking  the  near  view. 
Taking  the  far  view,  it  gets  it  at  its  own  ex- 
pense. The  worker  who  receives  less  than  a 
full  wage  has  a  decreased  buying  power.  The 
public  that  gets  an  article  at  a  high  price  qan- 
not  buy  much  of  it  and  it  must  pass  the  higher 
price  around  the  circle  and  thus  eventually  rob 
the  capitalist's  money  of  a  part  of  its  buying 
power. 

29 


The  Organization  of  Modern  Business 

Nobody  gains  out  of  waste.  Nobody  gains 
out  of  restriction  of  production — which  is  a 
form  of  waste.  The  manufacturer  may  think 
that  he  makes  more  money  by  restricting  pro- 
duction and  holding  up  the  price.  That  is  the 
controlling  delusion  of  the  steel  and  coal  trades 
but  it  takes  only  the  most  elementary  economic 
thought  to  discover  that  although  by  restricted 
production  the  number  of  dollars  received  in 
proportion  to  the  work  may  be  increased  those 
dollars  are  very  promptly  robbed  of  their  buy- 
ing power.  Production  with  the  idea  of  mak- 
ing a  large  profit  on  a  few  articles  is  a  vicious 
illusion.  It  is  really  not  so  odd  that  the  social 
revolutionaries  protest  against  it  as  it  is  that 
those  who  practise  it  believe  that  they  are  ac- 
tually accomplishing  what  they  think  they  are. 

In  the  iron  and  steel  industries,  for  instance, 
40%  of  the  capital  invested  is  idle  all  of  the 
time.  If  we  utilized  all  of  our  coal  resources 
to  the  utmost  we  could  get  all  of  the  coal  we 
needed  by  eliminating,  it  is  estimated,  about 
80%  of  our  mines  and  80%  of  our  miners — 
whose  productive  capacities  could  then  be 
thrown  into  other  branches  of  industry  or  agri- 
culture. This  would  relieve  the  railroads  of 
their  single  biggest  burden  which  is  the  trans- 
port of  coal,  would  require  a  smaller  invest- 

30 


First  Make— Then  Sell 

ment  in  rails,  and  permit  a  freer  and  cheaper 
transport  of  other  commodities,  and  in  the  end 
we  should  all  of  us,  steel  operators,  coal  miners, 
and  railroad  men,  have  the  capacity  to  buy 
much  more  than  we  buy  to-day — even  though 
we  might  not  use  so  many  counters  in  the  buy- 
ing process.  That  increased  buying  power 
would  flow  through  every  avenue  of  industry, 
everywhere  increasing  the  demand. 

That  which  is  called  standardization,  then,  is 
not  a  mere  whim.  The  use  of  automatic  ma- 
chinery, the  sub-division  of  labor,  and  the  ap- 
plication of  power  are  only  narrowly  to  be 
regarded  as  manifestations  of  ingenuity.  In 
their  larger  view  they  are  parts  of  a  social  de- 
velopment in  the  way  of  making  more  things 
with  fewer  men.  They  are  part  of  the  transi- 
tion of  the  man  from  the  purely  beast  stage 
into  the  higher  levels  and  there  can  be  no  stop- 
ping the  progress,  even  if  any  one  were  so  thick- 
headed as  to  desire  to  stop  progress.  The 
steady  progression  was  interrupted  by  the  war 
and  now  with  the  redistribution  of  wealth 
brought  about  by  the  war,  the  progress  will  go 
on  with  many  times  the  former  speed. 

This  is  not  philosophic  imagining.  The  pro- 
gression must  be  apparent  to  any  one  who 
views  the  signs  of  the  times.  You  have  only 

31 


The  Organization  of  Modern  Business 

to  look  at  a  Ford  automobile  passing  to  know 
that  it  is  true.  You  have  only  to  look  at  a  type- 
writer to  know  that  it  is  true.  You  have  only 
to  look  at  an  adding  machine  to  know  that  it 
is  true.  And  the  point  is  that  the  man  who 
grasps  this  progression,  who  understands  what 
is  going  on  about  him,  is  the  man  who  will  be 
equipped  to  prosper  and  go  forward.  The  man 
who  cannot  see  beyond  the  wart  on  his  nose 
will  be  left  by  the  wayside  waving  his  arms  like 
a  windmill  and  protesting  that  things  are  not 
what  once  they  were,  which,  by  the  way,  is  a 
protest  that  started  some  time  before  the 
Egyptian  kings  were  good  enough  to  live  in 
order  that  the  cigarette  makers  of  to-day  might 
have  a  nomenclature. 

Or,  to  express  the  entire  matter  in  a  more 
concrete  fashion,  the  larger  money  in  manu- 
facturing to-day  is  to  be  made  through  stand- 
ardization, and  standardization  involves  a 
nicety  which  we  have  not  previously  known  in 
the  planning  of  our  operations.  The  selling, 
the  production  problems,  and  the  labor  prob- 
lems are  so  cunningly  interwoven  in  this  new 
scheme  of  things  that  they  cannot  possibly  be 
separated. 

The  reaction  to  standardization  is  at  the  first 
not  wholly  agreeable.  The  term  brings  to  mind 

32 


First  Make— Then  Sell 

a  dull,  drab  world  clothed  in  what  amounts  to 
a  uniform,  living  all  in  the  same  sort  of  houses 
filled  with  impersonal  standardized  furniture 
and  eventually  reading  standardized  books  and 
newspapers.  Only  a  Teutonic  mind  could  find 
joy  in  such  a  picture.  But  no  such  result  need 
flow  from  standardization  unless  the  standards 
are  fixed  by  the  State  in  a  socialistic  era. 

If  instead  of  " standard"  we  say  "style" 
the  picture  is  the  less  offensive.  And  when  you 
examine  styles  you  will  find  that  they  do  not 
differ  much ;  this  woman  whom  you  pass  seems 
to  be  dressed  quite  differently  from  the  next 
one  but  if  you  compare  both  of  them  with  a 
fashion  plate  of  1800  you  will  find  that  they  are 
nearer  in  style  to  each  other  (however  different 
they  may  look)  than  they  are  to  the  old  draw- 
ing. 

It  does  not  follow  from  standardization  that 
we  should  all  take  on  a  certain  sameness;  arti- 
cles of  luxury  will  hardly  be  standardized. 
There  is  no  reason  that  they  should  be  for  they 
will  come  under  the  art  heading.  But  it  is 
otherwise  with  the  common  utilities  of  the  day. 
No  one  insists  upon  a  distinctive  design  in  fry- 
ing pans ;  what  is  wanted  is  a  good  pan,  and  it 
does  not  sear  the  heart  of  Gotrocks  to  think 
that  this  scrubwoman  may — in  her  home — have 


The  Organization  of  Modern  Business 

an  exact  counterpart  of  the  frying  pan  that 
graces  his  kitchen.  No  owner  of  a  high-grade 
car  objects  to  any  one  else  in  the  world  owning 
a  car  with  an  identical  motor.  It  offends  no 
one  to  have  steel  rails  much  alike.  And  neither 
do  we  insist  upon  distinctive  styles  in  type- 
writers. We  are  content  to  choose  a  brand  and 
are  glad  to  know  that  we  shall  not  have  to  go 
to  the  further  trouble  of  picking  out  a  first- 
class  specimen. 

And  neither  does  standardization  mean  year 
after  year  uniformity  and  inflexibility  of  de- 
sign, but  it  does  connote  that  changes  will  be 
made  only  after  thorough  study  and  experiment 
and  not  to  suit  passing  whims. 

For  instance,  a  firm  in  Birmingham  making 
builders '  hardware  had,  before  the  war,  a  large 
trade  with  the  Colonies  and  the  Orient.  They 
had  in  their  catalogue  more  than  20,000  items. 
Through  more  than  a  century  they  had  held 
themselves  open  to  make  anything  in  the  way 
of  builders'  hardware  that  perversity  might 
demand  and  consequently  they  had  accumu- 
lated a  multitude  of  designs.  In  one  style  of 
door  bolt  they  carried  forty  sizes;  six  would 
have  answered  all  reasonable  needs,  but  be- 
cause a  Calcutta  merchant's  grandfather  had 
bought  a  certain  style,  he  continued  to  order 

34 


First  Make— Then  Sell 

that  style.  Practically  every  order  was  special 
and  the  lots  rarely  exceeded  four  or  five  gross. 
This  prevented  the  introduction  of  automatic 
machinery  or  the  development  of  repetitive 
methods — even  had  the  unions  consented  to  any 
labor-saving  arrangements.  After  the  war  that 
company  was  faced  with  high  wages.  They 
had  on  hand  a  quantity  of  automatic  machinery 
left  over  from  munitions  work.  They  could  not 
well  go  back  to  their  old  plan  of  manufacturing 
for,  according  to  their  old  costs,  the  labor 
charges  would  be  prohibitive.  Instead  they 
took  to  heart  their  war  lessons  and  embarked 
upon  a  program  of  repetitive  operations.  They 
cut  their  catalogue  list  down  to  about  a  thou- 
sand items — without  sacrificing  a  single  essen- 
tial design  or  size.  And  even  with  this  still 
large  variety  of  articles  they  have  already  suc- 
ceeded in  absorbing  practically  all  of  the  in- 
creased labor  cost.  They  intend,  just  as  soon 
as  their  customers  become  accustomed  to  the 
limited  range  of  sizes,  to  make  another  drastic 
cut  until  eventually  they  hope  to  have  their  fac- 
tory divided  into  a  number  of  departments 
each  of  which  will  make  but  one  thing.  That 
is  a  remarkable  example  of  a  present-day 
transition  from  practically  the  era  of  hand 
work  to  that  of  machine  work  and  demon- 

35 


The  Organization  of  Modern  Business 

strates  the  new  factor  of  standardization  that 
has  to  be  present  wherever  machines  are  ex- 
tensively employed. 

The  immediate  fundamental  change  then  be- 
tween the  old  and  the  new  style  of  manufac- 
turing is  that  in  the  former  one  first  sold  and 
then  made,  and  in  the  latter  one  makes  and  then 
sells.  This  seems  simple  enough  in  statement 
but  in  practise  it  involves  a  complete  departure 
from  the  ancient  method  of  selling  along  the 
lines  of  least  resistance. 

We  should  not  expect  a  coal  salesman  discov- 
ering a  demand  for  tin  on  his  route  to  take 
orders  for  tin  and  then  insist  that  the  coal  mine 
produce  tin.  We  should  quickly  arrange  for  a 
psychopathic  study  of  that  man,  but  unfortu- 
nately the  distinctions  are  not  always  so  plain. 
A  glove  salesman,  let  us  say,  in  the  course  of 
time  develops  a  large  acquaintance  among 
haberdashery  stores  which  sell  many  articles 
in  addition  to  gloves.  The  shop  that  sells  only 
gloves  is  something  of  a  rarity.  The  glove 
salesman  could,  at  practically  the  same  selling 
expense,  dispose  of  a  line  of  scarfs,  handker- 
chiefs, walking-sticks,  belts,  or  any  of  the  large 
number  of  articles  that  a  haberdashery  carries, 
yet  it  is  fairly  obvious  that  a  glove-making  con- 
cern is  in  no  manner  fitted  to  make  up  scarfs 

3<3 


First  Make— Then  Sell 

unless  it  establishes  a  neckwear  factory — which 
may  or  may  not  be  in  the  same  building  as  the 
glove  making. 

The  salesman  can  handle  a  number  of  articles 
(the  number  depending  wholly  upon  the  per- 
sonality of  the  man)  and  it  has,  indeed,  some- 
times been  found  advisable  to  have  a  salesman 
handle  several  lines  in  order  to  prevent  him 
from  overselling  on  a  single  line.  A  conspicu- 
ous example  of  this  occurred  in  the  career  of 
a  packing  establishment.  This  establishment 
in  addition  to  fresh  meat,  packed  many  kinds 
of  tinned  meat,  conserves,  and  collateral 
foods.  Being  efficient  manufacturers  they  rig- 
idly separated  their  various  products  into  de- 
partments and  conducted  the  manufacture  of 
each  on  an  independent  basis,  but  they  went 
further  in  this  independence  and  set  up  depart- 
mental sales  managers  and  departmental  sales 
staffs.  Their  sales  were  to  retail  grocers.  The 
average  retailer  in  groceries  is  held  down  to  a 
strict  credit  limit.  Consequently  this  large  and 
diversified  selling  staff,  each  salesman  selling 
only  one  product,  nearly  ruined  the  business  of 
the  company,  for  if  the  tinned  meat  salesman 
first  struck  the  retailer  he  filled  that  man  up  on 
tinned  meat  to  his  credit  limit  and  until  that 
bill  was  paid  the  conserve  man,  or  whoever  else 

37 


The  Organization  of  Modern  Business 

happened  to  come  along,  was  absolutely  barred. 
Instead  of  a  retailer  having  a  complete  line,  he 
would  usually  be  over-stocked  in  one  branch 
and  without  a  stock  of  any  kind  in  the  others. 
The  remedy  here  was  simple.  Instead  of  hav- 
ing specialty  salesmen  covering  a  wide  terri- 
tory the  company  narrowed  the  territories  and 
put  a  representative  in  each  to  handle  the  whole 
line.  Then  the  company  had  its  products  dis- 
tributed. 

That  is  a  case  of  efficient  segregation  in 
manufacturing  offset  by  inefficient  selling. 
They  were  trying  to  get  the  salesman  to  spe- 
cialize but  their  markets  would  not  permit  of 
such  specialization.  Usually,  however,  the 
trouble  will  be  in  the  other  direction  and  a 
concern  will  find  itself  insensibly  yielding  to 
the  importunities  of  the  selling  staff.  If  the 
glove-making  concern  that  I  referred  to  could 
not  find  a  glove  salesman  and  instead  had  to 
take  a  man  experienced  in  the  selling  of  shoes, 
it  is  quite  obvious  that  they  would  teach  him 
to  sell  gloves  and  not  undertake  the  manufac- 
ture of  shoes. 

But  take  a  closer  case.  Take  the  case  of  a 
company  manufacturing  syrups  for  soda  foun- 
tains and  which  is  located  in  a  good  tomato- 
growing  region.  It  would  be  entirely  reason- 

38 


First  Make— Then  Sell 

able  that  they  would  take  on  a  wholesale  gro- 
cery salesman  if  they  could  not  find  a  soda 
fountain  man  and  it  is  not  unreasonable  that 
in  the  course  of  his  travels  this  salesman  would 
be  impressed  by  the  remarkable  market  for  a 
good  brand  of  canned  tomatoes.  The  company 
could  put  up  tomatoes  as  well  as  fruits  without 
a  very  large  change  in  equipment  and  if  the 
president  of  the  company  happened  to  be  a 
salesman  he  would  probably  listen  with  great 
interest  to  the  opening  for  tomatoes.  But  here 
is  the  production  side.  The  canning  season  for 
tomatoes  coincides  with  that  of  peaches  and 
would  add  to  the  peak  of  manufacturing  in- 
stead of  filling  the  valley,  and  also  the  tomatoes 
would  require  a  can-filling  and  soldering  outfit 
with  leak  test-tanks  and  the  like  which  the  fruit 
plant  did  not  possess.  The  net  result  of  en- 
gaging in  tomato  canning  would  be  to  increase 
the  plant  business  at  the  very  time  when  no 
increase  was  desired  and  to  cause  an  additional 
investment  that  would  have  to  get  its  wage  in 
a  short  season. 

There  is  no  reason  in  the  world  why  this  com- 
pany should  not  go  in  for  vegetables  as  well  as 
for  fruits,  but  the  point  that  I  am  trying  to 
make  is  that  ii  would  be  exceedingly  uneco- 
nomical to  engage  on  an  opportunist  basis.  The 

39 


The  Organization  of  Modern  Business 

vegetable  engagement  would  have  to  be  made 
deliberately  with  the  proper  and  planned  addi- 
tions to  the  plant  so  that  the  vegetables  might 
be  canned  with  the  utmost  economy  and  with 
the  thought  of  fitting  them  into  any  idle  floor 
space,  shipping  or  receiving  facilities.  That  is, 
the  vegetables  should  not  be  canned  simply  be- 
cause a  salesman  found  that  he  could  get  or- 
ders. That  is  only  a  single  cosideration. 

For  the  modern  plant  should  manufacture 
what  it  is  best  fitted  to  manufacture;  and  then 
sell  that  product.  If  the  product  is  not  salable 
the  plant  should  be  carefully  revamped.  No 
plant  will  long  survive  if  it  sells  regardless,  and 
its  factory,  like  the  tail  of  a  kite,  twists  and 
squirms  to  the  rear,  its  product  the  design  of 
a  momentary  whim. 


40 


CHAPTER  HI 

FINANCING  A  BUSINESS  FEOM  THE  INSIDE 

NEARLY  every  man  in  a  manufacturing  way  is 
some  time  forced  to  reconsider  his  old  align- 
ment of  selling  and  manufacture  by  that  most 
forceful  of  all  arguments — money. 

In  the  old  wasteful  way  of  operating  with 
frequent  shuttings-down  and  startings-up,  with 
some  of  the  machinery  even  in  the  busiest  times 
partially  idle,  even  with  low  wages,  money  was, 
indeed,  sufficiently  important.  But  when  wages 
are  high  and  raw  materials  expensive,  a  con- 
dition which  recurs  every  few  years,  the  busi- 
ness that  could  carry  on  with  a  capital  of 
$500,000  finds  that  it  needs  at  least  a  million, 
and  that  without  taking  into  account  future 
production  plans  which,  based  upon  the  old 
methods,  call  for  the  investment  of  a  further 
million. 

Not  a  few  men  retain  the  ancient  view  of 
manufacturing  and  provide  funds  for  exten- 
sions and  for  further  development  without  a 
thought  as  to  whether  under  a  more  scientific 

41 


The  Organization  of  Modern  Business 

mode  of  manufacture  they  would  really  need 
the  money.  There  are  others  who  hold  the  same 
views,  who  are  firmly  convinced  that  they  need 
money,  but  who  hold  back  either  because  of  the 
high  price  of  money  or  because  they  cannot  get 
it  at  any  price.  The  latter  class  is  forced  to 
consider — whether  or  no — those  principles  of 
manufacturing  which  I  have  outlined  in  the 
foregoing  chapters;  they  have  to  find  a  way 
out. 

If  a  man  can  easily  get  all  of  the  money  he 
needs,  he  will  extend  on  the  well-recognized 
financial  principles  by  which  assets  are  assets 
and  business  is  business,  which  hold  that  if  a 
machine  is  turning  out  one  hundred  of  an  arti- 
cle to-day  the  only  way  to  get  two  hundred  of 
those  articles  is  to  install  a  second  machine. 

It  was  common  practise  but  not  common 
sense,  except  in  an  emergency,  to  add  greatly  to 
equipment  at  the  high  prices  of  1919.  The  com- 
mon thought  was:  "I  can  get  anything  I  ask 
for  my  goods.  Why  worry  about  the  cost  of 
new  equipment  f" 

A  very  few  men  so  completely  lost  their  bear- 
ings in  those  days  as  to  carry  a  machine  which 
they  could  have  bought  for  $5,000  in  1914  and 
which  in  1919  cost  $10,000  permanently  at  the 
larger  price.  There  were  few  such  men,  how- 

42 


Financing  a  Business  from  the  Inside 

ever.  But  beyond  the  cost  another  factor  was 
apparent  to  far-seeing  men.  They  saw  that 
any  considerable  increase  in  the  world's  pro- 
ductive capacity  would  serve  to  check  the  tend- 
ency to  inflation  and  therefore  to  stabilize 
prices.  The  moment  buying  and  selling  at  any 
old  price  stopped  marked  the  commercial  doom 
of  those  who  did  not  recognize  the  certain  bal- 
ance between  sales  and  production.  The  bur- 
den of  useless  money  became  crushing. 

Very  few  concerns  need  as  much  money  as 
they  think  they  need  and  the  wise  man  will  not 
tie  up  money  in  such  grossly  high-priced  bricks, 
mortar,  and  machinery  unless  he  can  charge 
them  off  almost  at  once.  Yet  without  a  co- 
ordination of  production  and  sales  no  man  can 
know  the  amount  of  money  that  he  may  require. 
He  can  only  guess  and  his  guess  will  be  large. 
The  unthinking  way  is  to  pass  up  the  problem 
and  seek  more  money;  the  hard,  thinking  way 
is  to  get  more  out  of  what  you  have.  The  more 
money  you  have  in  business  in  proportion  to 
volume  the  greater  are  the  maintenance  charges 
and  the  smaller  is  the  possibility  of  attaining 
cheap  production.  Money  is  often  a  deterrent 
to  efficiency. 

Let  us  look  at  money  in  relation  to  the  plant. 
Is  a  plant  a  building  or  a  tool?  Most  plants 

43 


The  Organization  of  Modern  Business 

are  buildings.  Indeed,  I  have  read  no  end  of 
articles  on  proper  plant  design  which  consider 
not  at  all  the  work  to  be  done  (excepting  a  cer- 
tain distinction  between  heavy  and  light  manu- 
facturing) but  dwell  at  length  upon  the  archi- 
tectural design.  I  recall  one  general  plan  in 
which  the  emphasized  feature  was  the  location 
of  the  administrative  offices.  According  to  the 
writer,  a  man  of  some  distinction,  the  big  thing 
was  to  locate  the  offices  in  the  center  and  radi- 
ate the  various  buildings  from  it  like  the  spokes 
of  a  wheel.  The  idea  was  that  the  administra- 
tive officers  could  then  most  easily  get  from 
place  to  place  or  could  even  survey  operations 
from  a  central  conning  tower  somewhat  after 
the  model  prison  in  which  the  guards  are 
grouped  in  a  central  gallery  from  which  the  cell 
blocks  radiate.  But  the  executive  function  is 
not  to  watch  workmen  but  to  see  that  the  work 
goes  through  easily.  The  wheel  design  would 
involve  the  maximum  of  avoidable  trucking  and 
just  because  an  automatic  conveyor  will  satis- 
factorily transport  through  a  considerable  dis- 
tance is  no  reason  for  providing  that  distance 
if  by  any  possibility  it  can  be  avoided.  It  is 
the  work,  not  the  administration,  that  controls, 
and  whenever  I  am  called  in  to  advise  upon 
factory  construction  my  first  thought  is  the 

44 


Financing  a  Business  from  the  Inside 

work.  I  lay  the  work  out  on  paper  to  provide 
a  continuous  stream  which  has  its  source  at  xthe 
receipt  of  the  raw  materials  and  its  end  with 
the  finished  product  at  the  freight-car  door. 
The  important  points  are  that  the  product  must 
not  retrace  its  course  or  move  through  an  un- 
necessary inch  of  space.  Having  mapped  the 
course  of  the  product  the  next  step  is  to  plan  a 
building  to  house  those  sequential  operations. 
The  building  is  but  a  cover — it  is  the  case  of 
the  machine. 

But,  it  will  be  objected  at  once,  every  one  is 
not  erecting  a  new  building.  Every  one  has  not 
unlimited  ground  at  hand.  This  does  not  affect 
the  situation.  We  can  always  approach,  even 
if  we  do  not  attain,  the  ideal.  It  is  not  neces- 
sary that  the  product  should  flow  always  in  a 
straight  line — thereby  forming  the  consequent 
building  into  a  great  pipe,  into  one  end  of  which 
you  pour  raw  materials  and  out  of  the  other  end 
debouches  the  finished  article.  You  can  curve 
a  pipe  on  itself  without  any  considerable  waste. 
If  the  products  are  small  you  can  use  any  num- 
ber of  floors.  There  is  always  a  satisfactory 
compromise  possible  provided  the  work  con- 
trols. If  you  cannot  do  the  best,  try  the  next 
best;  don't  abandon  an  effort  because  the  task 
appears  hard. 

45 


The  Organization  of  Modern  Business 

The  problem  is  not  at  all  an  impossible  one 
with  even  an  old  building,  for  although  the 
maximum  of  economy  of  movement  may  not  be 
attained  in  the  older  building  the  way  is  open 
to  a  reasonable  rearrangement  which  will  save 
many  times  the  cost  of  the  rearranging. 

The  reason  that  the  first  step  is  to  plan  the 
work  rather  than  the  building  is  because  in 
nearly  every  manufacturing  operation  there 
turns  up  that  which  is  known  as  the  "neck  of 
the  bottle "  which  is  a  point  where  the  equip- 
ment is  out  of  balance.  For  instance,  take  a 
company  making  automobile  gears.  A  tend- 
ency arose  in  the  trade  to  favor  the  helical  as 
against  the  straight  cut  gears,  and  the  sales  de- 
partment, following  the  line  of  least  resistance, 
brought  in  a  large  number  of  orders  for  the 
helical  cut.  The  company  had  more  orders  on 
its  books  than  ever  before,  but  it  was  not  able 
to  produce  more  than  ever  before  because  the 
shop  had  been  at  least  partially  designed  for 
the  straight  cut  and  concentration  on  the  helical 
cut  threw  upon  certain  machines  more  work 
than  they  could  handle,  while  other  very  val- 
uable machinery  gradually  fell  into  disuse.  The 
machines  for  the  preliminary  work  were  very 
busy,  a  number  of  machines  required  in  a  sub- 
sequent operation  were  choked  and  threatening 

46 


^Financing  a  Business  from  the  Inside 

to  become  a  dam  in  the  current  of  production, 
while  other  machines  necessary  in  the  making 
of  straight  cut  gears  were  almost  idle.  This  is 
the  familiar  "neck  of  the  bottle "  situation. 

The  company's  planning  department  saw 
what  was  going  to  happen  and  they  so  informed 
the  sales  department.  The  salesmen  then  went 
out  and  got  orders  for  a  new  kind  of  work  to 
employ  the  idle  machinery  while  the  "neck  of 
the  bottle "  was  cleared  by  the  addition  of  a 
sufficient  number  of  new  machines  to  coordinate 
their  work  with  the  work  which  went  before  it. 
There  was  a  case  of  intelligent  cooperation.  In 
ninety-nine  plants  out  of  a  hundred  the  ma- 
chinery not  required  for  the  new  orders  would 
have  been  allowed  to  remain  idle  while,  under 
the  impression  that  perhaps  the  helical  cut 
gears  would  soon  cease,  the  "neck  of  the  bot- 
tle ' '  would  have  been  so  completely  choked  that 
the  preliminary  operations  would  have  been 
slowed  down  and  that  concern  would  have  lost 
money  on  its  big,  new  business.  They  managed 
to  attain  the  maximum  profit  by  keeping  every 
invested  penny  working  and  they  added  only 
that  small  portion  of  machinery  necessary  to 
maintain  a  balance  of  equipment. 

In  a  plant  making  underwear,  it  was  thought 
that  additional  machinery  had  to  be  installed 

47 


The  Organization  of  Modern  Business 

to  take  care  of  new  business.  The  plant  was 
turning  out  approximately  a  thousand  gar- 
ments a  day.  They  were  working  under  a  piece 
rate  scale  with  what  they  thought  was  a  scien- 
tifically set  bonus.  The  management  had  intel- 
ligently tried  to  grapple  with  their  problems. 
They  saw  no  way  to  increase  production  other 
than  by  adding  machinery,  but  the  machinery 
they  needed  was  not  only  high  in  price  but  no 
promise  of  delivery  could  be  had  under  six 
months.  A  considerable  doubt  also  existed  as 
to  whether,  if  they  did  have  the  machinery,  the 
additional  workers  could  be  found.  A  thorough 
study  of  the  methods  then  in  vogue,  a  re- 
routing of  the  work,  and  a  readjustment  of  the 
wage  scales  brought  about  within  two  months 
an  increase  of  26%.  That  company  looked  for- 
ward to  a  readjustment  of  prices  with  equa- 
nimity which  most  certainly  they  could  not 
have  done  had  they  taken  wholly  for  granted 
that  their  previous  equipment  and  personnel 
were  exerting  100%  of  energy. 

At  the  time  these  changes  were  made  an  ad- 
dition of  26%  to  the  equipment  would  have 
cost  at  least  half  as  much  as  the  whole  plant 
did  some  years  ago. 

A  certain  difficulty  in  procuring  machinery 
or  in  procuring  money  is  to  be  looked  upon  as 

48 


Financing  a  Business  from  the  Inside 

a  blessing,  for  not  otherwise  is  made  that  inten- 
sive study  of  conditions  which  is  so  necessary. 

This  whole  subject  of  finance  is  fundamental, 
but  I  do  not  care  to  consider  it  as  a  subject 
apart.  I  think  that  it  may  be  the  more  intelli- 
gently comprehended  if  we  look  upon  each  idle 
portion  of  the  plant — that  is,  each  idle  square 
foot,  each  idle  machine — as  a  capital  waste,  and 
regard  always  the  procuring  of  new  capital  not 
as  the  first  step  in  an  extension  of  facilities  but 
as  the  last  step,  and  that  a  new  foot  of  space 
is  not  to  be  added  until  we  are  quite  certain 
that  all  of  the  space  already  there  is  doing  its 
full  work. 

A  plant  is  a  machine — a  tool.  If  a  merchant 
decides  to  buy  a  motor  truck,  almost  as  a  mat- 
ter of  course  he  will  select  a  truck  with  a  mind 
to  that  which  he  intends  to  move.  If  he  intends 
to  do  heavy  trucking  he  will  buy  a  four-ton 
truck,  but  if  he  intends  to  make  light  deliveries 
he  will  buy  a  one-ton  truck.  He  should  load 
whatever  truck  he  buys  to  capacity.  He  should 
know  that  it  costs  just  as  much  per  mile  if  it 
be  loaded  to  the  guards  or  loaded  only  with  a 
steamer-trunk.  He  knows  that  if  he  loads  only 
one  ton  on  a  four-ton  truck  that  he  has  not  re- 
duced the  cost  of  operation  to  that  of  a  one-ton 
truck.  He  knows  that  his  big  truck  is  eco- 

49 


The  Organization  of  Modern  Business 

nomical  only  when  loaded  at  or  near  capacity; 
that,  in  effect,  it  is  a  tool  rather  narrowly  lim- 
ited in  true  usefulness  and  that  to  use  it  for 
small  operations  is  equivalent  to  employing  a 
sledge-hammer  to  drive  a  carpet-tack.  But 
while  it  is  patently  ridiculous  to  heave  a  sledge- 
hammer at  a  carpet-tack,  moving  a  small  load 
with  a  big  power  is  not  so  self-evidently  silly 
and  it  is  only  latently  silly  to  put  an  "A"  plant 
on  "B"  work.  I  know  a  company  that  spe- 
cializes in  high-grade  cooking  utensils  such  as 
percolators  and  chafing-dishes,  but  which  also 
makes  a  cheap  line  of  galvanized  buckets  and 
wash-boilers.  There  is  no  reason  on  earth  for 
combining  these  very  different  lines;  one  does 
not  absorb  the  waste  of  the  other,  and  in  a  large 
part  they  require  different  equipment.  Another 
plant  making  cooking  utensils  also  rolls  and 
draws  tubing  which  is  a  wholly  different  line 
and  their  diversion  does  not  even  possess  the 
merit  of  being  able  to  utilize  the  services  of  a 
single  set  of  salesmen. 

There  can  be  no  objection  to  one  company 
engaging  in  several  kinds  of  work.  Indeed, 
something  may  be  said  in  favor  of  the  mobiliza- 
tion of  purchasing  power,  but  each  of  the  sev- 
eral products  should  stand  on  its  own  feet  and 
be  wholly  segregated  in  manufacturing  and  in 

50 


Financing  a  Business  from  the  Inside 

accounting.  Then  what  we  really  have  is  a 
number  of  plants  under  a  single  ownership — 
we  do  not  mix  products.  The  great  difficulty 
with  this  sort  of  operating  is  the  constant  invi- 
tation further  to  extend  into  the  making  of 
things  for  which  the  place  is  not  fitted. 

A  plant  is  in  like  case  with  the  truck.  It  is 
built  for  a  purpose.  It  is  in  a  way  a  rigid  mass 
and  only  by  so  considering  it  can  the  utmost 
be  gained  from  operation. 

A  plant  which  is  nicely  geared  for  the  making 
of  an  automobile  motor  at  the  rate  of,  say,  400 
a  day  at  100%  capacity  could  without  question 
turn  to  the  making  of  aeroplane  engines,  tur- 
bines, or  even  machine  tools.  But  it  could  not 
make  even  the  aeroplane  engines  economically 
without  a  transformation  from  the  rigidity  that 
formed  the  automobile  motors  so  nicely  to 
another  rigidity  calculated  to  produce  the  aero- 
plane engines.  To  make  turbines  would  require 
another  series  of  transformations  and  still 
another  would  be  required  for  the  machine 
tools.  The  change  from  automobile  to  aero- 
plane motors  is  apparently  a  slight  one  and  if 
the  president  of  an  automobile  company  were 
a  salesman  and  his  plant  were  not  working  to 
capacity  on  automobiles,  he  might  give  ear  to 
an  attractive  offer  to  make  aeroplane  engines, 

51 


The  Organization  of  Modern  Business 

but  unless  he  calculated  the  cost  of  the  trans- 
formation of  machinery  and  process  to  adapt 
the  plant  to  aeroplane  motors  and  also  the  cost 
of  adapting  it  back  again  to  automobile  motors, 
he  would  probably  lose  money  on  the  aircraft 
venture. 

In  the  neatly  balanced  plant,  job  work  is  im- 
possible. Take  a  machine  tool  plant  which  has 
been  turning  out  standard  lathes.  Suppose 
they  decide  to  accept  a  special  order  for  lathes 
which  are  just  a  few  inches  longer  than  the 
standard.  If  that  plant  has  been  properly  bal- 
anced for  the  production  of  the  standard  lathe 
and  is  operating  at  100%  of  its  efficiency,  then 
the  new  order  will  throw  the  arrangements  far 
more  out  of  joint  than  any  but  the  most  far- 
seeing  of  managers  will  realize.  In  building 
the  larger  lathe  there  may  not  be  any  materially 
greater  number  of  hours  of  lathe  work,  there 
may  be  no  more  than  the  standard  drill  press 
work,  for  the  design  may  closely  follow  that  of 
the  standard.  But  the  new  lathes  are  larger 
and  hence  more  planning  will  have  to  be  done. 

Let  us,  to  make  our  point,  say  that  the  only 
added  work  required  is  planing.  If  the  plant 
had  been  properly  balanced  for  the  standard 
then  the  planers  would  be  working  at  their 
maximum.  They  cannot  do  more  than  that 

52 


Financing  a  Business  from  the  Inside 

work.  The  new  job  requires  additional  plan- 
ing. What  was  100%  plant  activity  of  the 
equipment  as  a  whole  on  the  standard  design 
becomes  80%  or  90%  on  the  new  design.  The 
planers  must  have  10%  or  20%  more  time  per 
unit.  Therefore  the  planers  choke  the  progress 
of  the  work  and  pass  on  to  the  subsequent  ma- 
chines, instead  of  the  100%  to  which  they  are 
accustomed,  only  80%  or  90%.  They  are  shy 
on  work  and  we  have  an  ill-balanced  plant  with 
partially  idle  equipment.  The  early  operations 
are  going  through  at  the  old  100% ;  they  quickly 
flood  the  planers  and  have  to  slack  down.  The 
whole  plant  drops  to  the  planer's  capacity  and 
thus  by  a  very  simple  change  in  product — a 
change  which  might  seem  inconsequent — that 
plant's  efficiency  has  been  reduced  by  10%  or 
20%.  The  overhead  expense  does  not  diminish; 
therefore  instead  of  distributing  the  overhead 
among  100  units  we  distribute  it  among  80  or 
90  units,  and  away  flashes  the  profit  on  the  new, 
interesting  contract. 

This  overhead,  or  expense,  is  necessarily 
high  when  the  planning  is  efficient.  It  will  not 
uncommonly  amount  to  200%  on  the  "produc- 
tive" labor.  As  I  shall  in  a  later  article  demon- 
strate, it  is  rarely  wise  to  cut  down  overhead 
although  it  must,  of  course,  be  closely  watched 

53 


The  Organization  of  Modern  Business 

to  see  that  it  is  an  effective  expense  and  not 
merely  an  expense.  But  generally  the  overhead 
in  an  efficient  plant  will  be  high  and  the  eco- 
nomical way  to  cut  it  down  is  to  distribute  it 
over  a  large  product.  It  is  through  such 
economy  and  not  through  little  special  jobs  at  a 
fancy  price  that  the  highest  efficiency  is  to  be 
achieved. 

The  point  is  to  keep  all  of  the  machinery 
working  at  100%.  This  is  not  an  easy  task. 
In  some  kinds  of  plants  it  is  all  but  impossible. 
In  making  safes,  notably  the  large  manganese 
safes,  huge  boring  mills  have  to  be  used  and 
these  often  have  to  remain  idle.  To  keep  them 
constantly  at  work  requires  a  more  consider- 
able plant  capacity  than  other  than  a  very  large 
safe  company  can  distribute.  Yet  the  big  ma- 
chines are  essential.  A  large  company  can  so 
balance  its  plant  as  to  keep  busy  even  the  great- 
est and  most  expensive  of  machines,  but  the 
small  plant  sometimes  finds  it  necessary  to  have 
machines  needed  for  certain  operations  without 
at  the  same  time  being  able  to  provide  a  suf- 
ficient number  of  machines  on  preceding  opera- 
tions to  keep  the  big  capacity  tools  working. 
The  smaller  plant,  thus  situated,  can,  however, 
with  proper  planning  take  on  special  jobs  of  a 
nature  entirely  different  from  the  regular  work 

54 


Financing  a  Business  from  the  Inside 

but  designed  to  absorb  the  otherwise  idle  ma- 
chine hours.  Naturally  these  jobs  have  to  be 
arranged  so  as  not  to  interfere  with  the  regu- 
lar work. 

The  ideal  of  manufacturing  is  first  to  decide 
exactly  what  you  are  going  to  make  and  then 
determine  how  you  are  going  to  make  it — laying 
out  each  operation  and  each  machine  capacity 
so  that  an  exact  balance  will  be  possible,  and 
then  charting  the  operations  to  insure  the 
preservation  of  this  balance.  Theoretically  the 
various  parts  should  arrive  upon  the  assembly 
floor  at  exactly  the  same  time  so  that  the  as- 
sembly workers  will  not  be  delayed  and  so, 
also,  that  capital  will  not  be  tied  up  in  finished 
parts  waiting  around  for  their  complementary 
parts  to  come  through.  In  this  theoretical  way 
of  doing  business  the  production  and  the  sales 
departments  decide  together  on  what  and  how 
much  is  to  be  sold  and  then  go  ahead  with  the 
producing  and  the  selling.  Such  nicety  is  sel- 
dom possible.  One  rarely  starts  business  in 
quite  so  clean-cut  a  fashion.  Now  and  again 
a  group  of  men  will  have  sufficient  capital  and 
sufficient  experience  thus  deliberately  to  em- 
bark upon  a  commercial  adventure  but  more 
commonly  business  is  a  growth  in  which  acci- 
dent plays  a  certain  part,  and  it  is  probably 

55 


The  Organization  of  Modern  Business 

only  after  some  years  of  experience  that  the 
owners  learn  what  they  can  best  make  and 
therefore  what  they  can  best  sell.  Then  it  will 
rarely  be  economical  for  them  to  take  a  fresh 
start  unless  it  be  that  their  requirements  are 
such  that  a  new  building  in  a  new  location  is 
expedient. 

More  often  one  must  compromise  and  by  fre- 
quent experiment  and  close  supervision  get  all 
of  the  machines  and  departments  in  balance. 
Take  the  situation  of  a  large  manufacturer  of 
somewhat  bulky  machines  of  a  special  nature. 
The  number  of  parts  is  considerable;  some  of 
them  are  manufactured  in  the  plant  and  some 
are  bought  from  the  outside.  The  company 
made  money  but  it  was  continually  in  difficulty. 
Customers  were  continually  complaining  of  the 
delays  in  the  filling  of  their  orders.  The  finan- 
cial department  was  continually  complaining  of 
the  amount  of  money  tied  up  in  the  inventory 
of  parts,  and  although  every  one  was  busy  the 
assembly  floor  was  always  cluttered  with  ma- 
chines partly  finished  and  awaiting  the  pro- 
cessing of  some  needed  part.  A  machine  might 
lack  for  completion  only  one  small  and  inex- 
pensive piece,  but  nevertheless  it  would  have 
to  hang  about  the  floor  until  a  special  order 
was  procured  and  the  missing  part  brought 

56 


Financing  a  Business  from  the  Inside 

through.  In  the  meantime  the  interest  on  the 
idle  dollars  was  evaporating. 

The  departmental  costs  of  production  in  this 
plant  were  not  high.  Indeed,  as  far  as  fabrica- 
tion was  concerned  the  record  was  something 
more  than  creditable,  but  what  the  company 
gained  in  fabricating  was  totally  lost  in  a  lack 
of  coordination.  We  found  an  easy  remedy. 
First  we  scheduled  the  number  of  machines  to 
be  built.  We  could  not  immediately  examine 
into  every  part  of  the  plant  to  determine  how 
to  keep  every  department  at  full  capacity  and 
coordinated  with  every  other  department.  That 
was  a  subsequent  development.  The  first  step 
had  to  be  a  satisfactory  filling  of  the  orders 
which  were  then  on  hand  or  in  prospect.  We 
then  analyzed  a  complete  machine  product  into 
component  parts.  Some  of  the  parts  were 
made  outside ;  for  them  we  gave  to  the  purchas- 
ing department  a  schedule  which  set  out  the 
dates  when  required  and  the  amounts.  The 
parts  manufactured  in  the  plant  varied  in  time 
of  making  from  nearly  a  month  to  a  few  hours. 
The  proper  time  for  making  each  was  calcu- 
lated by  time  study. 

Having  finally  got  all  of  these  facts  in  hand 
we  set  the  assembly  date  for  each  machine  and 
worked  back  from  that.  If  a  machine  were  to 

57 


The  Organization  of  Modern  Business 

be  assembled  on  the  10th  of  January  this  meant 
that  part  C2-244  would  have  to  be  put  in 
process  on  December  19th,  while  part  C-105 
would  not  have  to  be  started  until  the  8th  of 
January,  and  so  on  through  all  of  the  parts. 
The  results  were  remarkable.  Within  a  few 
months  production  was  so  coordinated  that  all 
of  the  varied  parts  going  into  a  finished  ma- 
chine turned  up  on  the  floor  of  the  assembly 
room  not  on  the  day  before  or  the  day  after 
that  set  for  assembling  but  on  the  morning 
of  the  very  day.  Previously  all  of  the  parts  of 
an  ordered  machine  had  been  put  into  process 
at  the  same  time  and  they  would  then  gradually 
arrive  on  the  assembly  floor  through  a  period 
of  six  or  seven  weeks. 

Naturally  that  company  required  less  capital. 
They  very  considerably  lessened  the  raw  mate- 
rial inventory,  the  purchased  parts  inventory, 
and  the  completed  parts  inventory.  A  dollar 
in  an  idle  part  is  in  like  case  with  the  dollar  in 
idle  machinery.  Under  the  old  condition  not 
only  was  a  large  amount  of  money  tied  up  in 
inventories,  but  because  work  went  through 
haphazardly  instead  of  on  schedule,  some  de- 
partments were  commonly  under-active  and 
others  too  busy.  This  was  not  a  large  company 

58 


Financing  a  Business  from  the  Inside 

but  the  mere  matter  of  scheduling  and  co- 
ordinating added  $50,000  a  year  to  the  profits. 
And  they  made  an  end  to  the  continual  com- 
plaints from  customers  about  delivery. 

Take  another  case.  This  company  was  not 
in  a  financial  position  to  invest  heavily  in  addi- 
tions to  plant  or  equipment  to  enable  it  most 
efficiently  to  handle  a  line  in  which  it  had  more 
or  less  experimentally  engaged.  It  endeavored 
to  make  the  best  of  the  situation.  The  engi- 
neers adapted  their  equipment  most  ingeni- 
ously and  although  they  did  not  expect  to  attain 
a  maximum  of  efficiency,  they  were  decidedly 
puzzled  to  find  that  after  some  months  of  opera- 
tion they  had  attained  only  60%  of  the  low 
standard  they  had  fixed. 

Here  is  the  situation  which  we  found.  The 
new  work  was  rather  heavy  and  the  lighter 
equipment  of  the  shop  hence  was  idle.  Some 
sturdy  automatic  machines  were  being  used 
most  efficiently  and  to  full  capacity.  A  wage 
incentive  was  in  force  and  this  had  increased 
production  but  the  larger  production  had 
jammed  and  was  ineffective.  Ten  heavy  ma- 
chines held  up  the  even  flow.  These  averaged 
630  pieces  a  day  and  each  performed  four 
operations.  The  first  three  were  turning  opera- 

59 


The  Organization  of  Modern  Business 

tions  and  the  last  threading.  The  turning 
needed  the  heavy  machines  but  the  threading 
did  not,  and  this  gave  us  our  opportunity. 

The  operation  time  on  the  heavy  machine  was 
570  seconds  of  which  the  threading  consumed 
130  seconds.  If  we  could  withdraw  the  thread- 
ing we  should  increase  the  machine  capacity  by 
about  30%.  We  found  that  the  lighter  ma- 
chines could  do  the  threading  very  well  and  in 
150  seconds.  The  increase  of  30%  in  the  ca- 
pacity of  the  "neck"  machines  brought  them 
up  to  819  pieces  a  day.  The  operators  before 
and  after  this  "neck"  operation  were  easily 
able  to  increase  their  output  to  correspond. 
And  thus  by  a  simple  study  of  operations  and 
a  perfectly  obvious  rearrangement  of  a  small 
portion  of  the  work  we  got  a  30%  increase  in 
the  capacity  of  the  plant.  If  the  company  had 
made  an  additional  investment  capable  of 
creating  a  30%  increase  in  production,  the  cost 
of  the  new  money  and  the  interest  on  it  would 
have  absorbed  all  of  the  profit  they  might  rea- 
sonably have  hoped  to  gain  on  the  contract. 

Truly  money  makes  the  wheels  go  round. 
But  too  much  money  clutters  them.  Modern 
business  puts  into  plant  and  equipment  the 
smallest  sum  possible  per  unit  of  production. 
Note  that  I  say  unit  of  production,  for  other- 

60 


Financing  a  Business  from  the  Inside 

wise  the  impression  might  be  gained  that  I  ad- 
vocate a  penny-wise  and  pound-foolish  policy. 
Quite  the  reverse;  it  may  be  greater  economy 
to  spend  a  million  dollars  than  ten  thousand 
dollars,  for  with  the  larger  sum  the  unit  cost 
may  be  reduced.  The  point  is  that  each  expen- 
diture is  but  the  part  of  a  whole  and  should  not 
be  made  until  conclusive  testimony  is  in  hand 
that  only  by  spending  can  the  additional  output 
be  had  in  an  economical  way.  And  the  only 
manner  in  which  to  obtain  that  conclusive  tes- 
timony is  to  so  align  the  plant  with  production 
as  to  make  sure  that  it  will  be  a  surely  cutting 
tool. 


61 


CHAPTER  IV 

WHAT   IS   A  FAIR   PROFIT? 

No  question  at  all  exists  as  to  what  is  an  un- 
fair profit.  An  unfair  profit  is  the  profit 
which  the  other  fellow  makes.  The  profit 
which  you  make  cannot  be  unfair — and  you  will 
explain  exactly  why  it  is  not  unfair  as  long  as 
any  one  will  listen.  In  fact,  if  you  are  allowed 
to  talk  long  enough,  you  will  make  out  a  case 
against  yourself  even  if  none  in  the  first  place 
existed. 

But  what  is  a  fair  profit? 

And  who  should  determine  the  profit?  Are 
we  really  talking  about  profit  or  about  price? 
Does  a  high  price  mean  a  high  profit,  and  does 
a  low  price  mean  a  low  profit?  Is  there  any 
connection  at  all  between  price  and  profit? 
Does  the  buyer  or  the  seller  make  the  price,  or 
is  the  price  made  by  an  outside  force  over 
<which  neither  has  any  control? 

An  endless  number  of  questions  arise  when 
one  starts  to  talk  about  prices  and  profits.  We 
get  into  the  same  morass  of  trouble  as  when  we 

62 


What  Is  a  Fair  Profit? 

talk  of  wages  being  high  or  low  without  refer- 
ence to  what  is  being  given  in  return  for  the 
wages. 

And  usually  when  prices  and  profits  are  com- 
mon topics  of  conversation  we  have  the  com- 
plications of  currency  inflation,  and  on  top  of 
that  the  problem  of  scarcity  which  resolves 
itself  more  or  less  into  a  discussion  of  what 
a  crust  of  bread  is  worth  to  a  millionaire  who 
is  starving. 

The  word  ' '  profiteer ' '  is  a  glib  and  ready  one 
that  springs  easily  from  the  lips  whenever  we 
think  we  have  been  overcharged — or,  what 
amounts  to  the  same  thing,  cheated.  Our  re- 
sentment unconsciously  leads  us  to  take  an  en- 
tirely unbusinesslike  view  of  the  whole  situa- 
tion— a  view  which  we  would  not  ordinarily 
take. 

If,  for  instance,  I  sell  a  suit  of  clothes  to  a 
second-hand  dealer,  I  shall  not  get  what  the 
suit  is  worth.  I  hope  to  get  more  than  it  is 
worth,  but  expect  to  get  less.  Really  I  do  not 
know  what  the  garment  is  worth  for  resale  be- 
cause I  am  without  knowledge  of  the  market. 
The  man  who  buys  from  me  will,  on  the  other 
hand,  know  the  market,  and  will  refuse  to  pay 
me  a  sum  greater  than  he  can  easily  resell  for 
at  a  profit. 

63 


The  Organization  of  Modern  Business 

In  eras  of  very  high  prices  such  as  followed 
the  war  both  buyers  and  sellers  are  in  the  posi- 
tion of  a  man  selling  his  cast-off  suits  to  the 
old  clothes  man — no  one  knows  what  anything 
is  worth.  And  that  is  why  I  say  it  is  easy  for 
any  man  to  convince  himself  that  whatever 
prices  he  charges  are  fair.  For  every  man  who 
sells  also  buys  and  his  sales  prices  are  often 
but  a  reflection  of  the  impotence  that  he  feels 
in  buying.  This  all  leads  to  a  general  loose- 
ness of  thought  and  expression  and  to  other 
shortcomings. 

We  are  all  too  prone  to  forget  that  the  buyer 
who  goes  away  from  us  feeling  that  he  has  been 
cheated  is  the  seed  of  our  future  bankruptcy. 
The  man  who  declares  that  he  will  "get  his  now 
whiie  the  getting  is  good"  never  does  "get 
his,"  for  the  short-sighted  greed  that  prompts 
his  action  never  knows  when  to  stop,  and  the 
end  is  financial  shipwreck.  In  pushing  forward 
to  get  more,  he  does  not  see  that  the  conditions 
which  permitted  him  to  make  his  killing  have 
changed,  until  all  at  once  he  is  brought  up  with 
a  sharp  turn  and  everything  is  taken  away  from 
him. 

What  punishment  shall  be  meted  out  to  the 
man  who  profiteers?  If  we  think  of  him  as  a 
cheat,  then  it  is  unnecessarily  expensive  to  put 

64 


What  Is  a  Fair  Profit? 

him  in  jail:  the  laws  of  nature  will  take  care 
of  him.  Indeed,  jailing  him  may  well  be  a  kind- 
ness for  not  otherwise  would  he  have  a  chance 
to  conserve  his  resources ! 

Take  the  profiteer  as  he  is  luridly  conceived. 
Let  us  pursue  the  animal.  We  recently  had  a 
juridical  formula  handed  down  which  may  be 
used  as  a  description  and  prevent  dragging  in 
the  wrong  beast.  A  Federal  judge  has  said 
that  a  just  and  reasonable  retail  profit  must  be 
determined  on  the  wholesale  cost  of  merchan- 
dise at  the  time  of  purchase  and  not  at  all  upon 
the  market  value  at  the  time  of  sale. 

This  is  an  interesting  thought  which  prompts 
one  to  reflect  whether  a  fair  profit  means  that 
sellers  should  not  make  money  or  that  buyers 
should  secure  a  low  price. 

For  instance,  I  might,  by  the  exercise  of  fore- 
sight have  bought  in  1915  a  stock  of  some  com- 
modity in  Japan  and  have  been  unable  until 
1920  to  get  it  across  the  ocean  on  account  of  the 
shipping  regulations.  Let  us  say  that  the  goods 
stand  me  ten  dollars  a  unit  in  my  American 
warehouse.  The  man  across  the  street  buys  his 
stock  in  1920;  it  stands  him  thirty  dollars  a 
unit,  and  he  offers  it  at  retail  at  fifty  dollars. 
If  I  offer  mine  at  forty,  I  am  profiteering — 
even  though  the  public  pays  less  than  it  would 

65 


The  Organization  of  Modern  Business 

have  had  I  not  had  foresight.  On  the  other 
hand,  if  I  sell  my  stock  at  retail  at  thirty,  I  am 
accused  of  cutting  business  from  under  the  feet 
of  my  competitor  and  also  I  realize  so  little 
money  that  when  the  old  stock  is  exhausted  I 
shall  not,  in  spite  of  my  profit,  have  money 
enough  to  replenish  at  the  then  market  price. 

If  I  follow  the  logical  sequence  of  the  rule  as 
laid  down,  my  only  course,  if  I  am  condemned 
with  a  forehanded  disposition,  is  not  to  make 
a  price,  but,  on  the  contrary,  send  all  of  my 
stock  to  auction  and  let  the  public  make  its  own 
price. 

Or  again,  suppose  that  I  have  a  badly  chosen 
stock  that  will  not  move  as  a  whole.  A  sudden 
demand  arises  for  some  article  which  I  happen 
to  have  had  in  stock  for  a  long  time  but  which 
had  practically  gone  off  the  market.  I  sell  out 
that  one  article  at  a  profit  of  one  thousand  per 
cent,  but  the  profit  on  that  single  article  is  not 
enough  to  meet  the  going  expenses  of  my  shop 
and  I  am  forced  into  bankruptcy.  Can  I  be 
both  a  profiteer  and  a  bankrupt? 

Or  turn  to  manufacturing.  If  I  have  a  well- 
managed  plant  and  planned  production,  I  can 
surely  turn  out  goods  at  a  lower  cost  than  a 
competitor  who  has  an  ill-managed  plant  and 
whose  production  planning  could  scarcely  be 

66 


What  Is  a  Fair  Profit? 

dignified  by  that  name.  If  I 'sell  at  his  price 
then  I  am  a  profiteer.  If  I  sell  on  costs  at  a 
low  profit  in  order  to  get  the  trade,  shortly  I 
shall  be  so  large  that  I  shall  be  charged  with 
unfair  competition  and  price-cutting.  We  have 
laws  to  prevent  manufacturers  sending  goods 
to  our  shores  on  almost  that  identical  basis. 

Or  leave  the  question  of  profit  per  sale  and 
take  the  year's  profit  on  invested  capital.  I 
may  keep  my  capital  working  through  every 
day  of  the  year  and  by  frequent  turnovers  at  a 
low  profit  per  turnover  make  a  very  high  profit 
on  my  invested  capital.  I  shall  have  performed 
a  high  public  service,  but,  according  to  the  gov- 
ernmental notions  of  business,  I  shall  be  a 
profiteer.  I  could  purge  myself  of  the  accusa- 
tion of  impurity  only  by  chucking  my  knowl- 
edge of  business  out  of  the  window  and  raising 
my  prices  sufficiently  to  slacken  the  turnover, 
and,  although  making  a  larger  profit  per  sale, 
make  less  on  my  invested  capital. 

Or  I  might  increase  my  capital.  Of  course  I 
shall,  against  my  will,  have  to  charge  the  public 
more  for  my  goods.  This  is  not  only  business 
but  also  social  lunacy.  But  unless  I  try  to  act 
like  a  lunatic  I  am  apt  to  be  put  into  jail.  Wit- 
ness the  case  of  the  Brooklyn  haberdasher  who 
was  arrested  as  a  profiteer  by  agents  of  the  De- 

67 


The  Organization  of  Modern  Business 

partment  of  Justice  because  he  made,  including 
his  salary,  a  profit  of  19%  on  sales,  which  hap- 
pened to  be  60%  upon  his  invested  capital. 
That  poor  fellow  committed  suicide  in  his  dis- 
grace. 

"But,"  some  one  will  immediately  ask, 
"would  you  take  the  lid  off  profits  and  let 
every  man  charge  exactly  what  he  chooses? 
How  then  could  you  curb  the  greedy?  Would 
not  the  public  then  be  at  the  mercy  of  the 
profiteers  ?  Should  we  not  be  paying  $75  a  pair 
for  shoes  and  $5  for  a  pound  of  beefsteak?" 

And  there  unfolds  a  dreadful  picture  of  a 
world  peopled  by  only  two  classes — profiteers 
and  their  victims.  Here  again  we  have  a  de- 
lightful assumption  growing  out  of  loose  think- 
ing. In  discussions  of  capital  and  labor  you 
would  imagine  that  only  the  laborer  worked 
and  never  had  any  work  done  for  him,  and  that 
likewise  the  owner  of  capital  only  buys  services 
and  never  has  his  own  for  sale.  This  is  non- 
sense. 

There  are  no  such  abstract  entities.  This  is 
a  world  of  human  beings,  and  it  is  impossible 
for  me  to  conceive  of  a  shoe-dealer  whose  sole 
activity  in  life  consists  in  selling  shoes  for  many 
times  what  every  one  else  thinks  he  should  sell 
them  for.  For  that  shoe-dealer,  in  spite  of  his 

68 


What  Is  a  Fair  Profit? 

bad  disposition,  cannot  get  on  without  buying 
food,  clothing  and  shelter.  Even  landlords  re- 
quire food  and  clothing.  And  this  brings  us 
to  the  extraordinary  belief,  which  now  seems  to 
prevail,  that  if  a  dealer  refuses  to  sell  his  shoes 
for  less  than  $75  a  pair,  or  the  butcher  refuses 
to  sell  his  beefsteaks  at  less  than  $5  a  pound, 
there  is  somewhere  some  compulsion  on  the 
part  of  the  buyer  to  buy  at  that  price. 

Situations  can  be  imagined  in  which  one 
might  have  to  buy  a  few  commodities  at  any 
price  in  order  to  preserve  life.  But  such  situa- 
tions are  rare.  They  have  no  more  to  do  with 
business  than  has  the  salvage  of  a  ship  at  sea 
to  do  with  the  ordinary  routine  of  the  merchant 
marine.  And  furthermore  it  is  presupposed 
that  in  this  dire  emergency  the  buyer  has  the 
money  with  which  to  pay  the  so-called  exorbi- 
tant price. 

The  talk  about  fair  and  unfair  prices  is  quite 
beside  the  real  point.  It  is  not  at  all  necessary 
to  surround  the  matter  of  prices  with  a  mist  of 
sentiment.  The  charging  of  extraordinarily 
high  prices  may  or  may  not  be  immoral.  That, 
too,  is  beside  the  point.  Low  prices  may  also 
be  immoral.  And  if  we  lug  philanthropy  into 
business,  what  are  we  going  to  do  with  the  man 
who  gets  perfectly  hipped  on  the  notion  of  sell- 

69 


The  Organization  of  Modern  Business 

ing  things  cheaply  to  the  public,  and  in  his 
ardor  forgets  to  pay  his  probably  less  emo- 
tional creditors?  Is  he  an  idealist  or  a  crook? 

But  are  we  to  admit  impotence  in  regulating 
profits?  Shall  we  allow  human  greed  to  run 
amuck?  Running  amuck  is  not  a  diversion  that 
can  long  be  sustained.  Usually  one  hits  a  stone 
wall  or  otherwise  demonstrates  the  physical 
phenomenon  that  two  solid  bodies  cannot  oc- 
cupy precisely  the  same  space  at  the  same 
time. 

Let  us  go  back  to  our  shoe-dealer.  Fifty 
years  ago  most  workmen  went  barefooted  in 
summer  because  shoes  were  considered  too  ex- 
pensive to  be  worn  heedlessly.  There  is  abun- 
dant evidence  to  sustain  the  conclusion  that  feet 
were  made  primarily  to  stand  on  rather  than  to 
give  aid  and  comfort  to  shoe-makers.  But 
to-day  very  few  people  think  of  going  bare- 
footed at  any  time  of  the  year.  We  have  grown 
into  the  habit  of  wearing  shoes  and  most  people 
have  several  pairs.  We  took  up  the  shoe- 
wearing  habit  not  because  our  feet  had  changed, 
but  because  shoes  became  cheaper.  Now,  if 
shoes  are  held  at  such  a  price  that  the  ordinary 
person  cannot  buy  a  pair  then  he  will  go  bare- 
footed, and  although  at  first  going  barefooted 
may  roughly  use  the  tender  foot,  the  makers  of 

70 


What  Is  a  Fair  Profit? 

shoes  will  suffer  more  than  the  owners  of  feet. 

We  can  discuss  the  morality  of  prices,  and 
we  can  shed  long,  salt  tears  as  we  pay  our  bills, 
and,  if  we  possess  sufficient  imagination,  we  can 
carry  on  our  sorrow  into  the  process  of  passing 
the  additional  cost  on  to  those  to  whom  we  sell, 
but  really  are  we  getting  anywhere  with  all  of 
this  self-deception  about  prices?  Is  it  not  bet- 
ter to  recognize  right  off  that  good  business  is 
founded  upon  enlightened  selfishness  and  go 
forward  on  that  principle? 

It  is  not  at  all  necessary  to  introduce  the 
moral  issue  into  business.  A  successful  busi- 
ness man  must  have  character;  he  must  also 
meet  his  financial  engagements.  Or  put  it  in 
another  way :  a  business  man  cannot  be  success- 
ful unless  he  has  character.  But  any  attempt 
to  fix  profits  or  wages  or  any  workings  of  busi- 
ness on  the  basis  that  human  beings  shall  not 
be  selfish  is  simply  bound  to  fail. 

It  is  the  fashion  in  these  days  to  predicate 
reforms  upon  bringing  about  a  quick  change  in 
human  nature.  It  would  seem  to  the  writer  to 
be  better  to  identify  service  to  the  public  with 
self-interest,  then  those  who  are  amused  by 
being  self-righteous  may  take  their  diversion 
on  the  side  and  not  interfere  with  the  orderly 
conduct  of  human  affairs. 

71 


The  Organization  of  Modern  Business 

We  are  witnessing  to-day  the  large  changes 
which  the  introduction  of  labor-saving  ma- 
chinery has  made  in  the  conduct  of  industry, 
especially  in  the  direction  of  making  prohibi- 
tive the  cost  of  an  idle  plant.  But  a  plant  will 
not  be  idle  if  its  product  is  put  within  the  reach 
of  almost  everybody.  The  wants  of  man  are 
infinite.  It  is  up  to  the  man  who  desires  to 
supply  some  of  those  wants  to  put  his  articles 
on  the  market  at  such  a  price  that  they  may  be 
bought  in  ever-increasing  quantities  by  a  con- 
stantly growing  number  of  people.  That  is  the 
best  way  to  serve  humanity,  but  it  also  happens 
to  be  the  way  to  make  the  largest  profit — a  par- 
ticularly fortunate  provision  of  nature,  since  if 
in  best  serving  the  public  one  also  best  serves 
oneself,  one  will  not  become  tired  of  serving  the 
public. 

From  the  owner's  standpoint,  it  is  not  the 
percentage  of  profit  per  sale  that  counts,  but 
the  annual  profit,  and  it  is  growing  increasingly 
evident  that  the  business  which  has  a  large  an- 
nual profit  on  a  comparatively  small  number 
of  sales  or  turnovers  of  capital  at  a  large 
margin  per  sale  is  not  nearly  so  stable  as  the 
business  which  gains  a  large  annual  profit  by  a 
great  number  of  turnovers  at  a  small  profit  per 
turn. 

72 


What  Is  a  Fair  Profit? 

It  is  always  the  first  thought  of  monopoly 
that  it  will  gain  the  largest  profit,  first,  by  shut- 
ting out  all  competitors,  second,  by  charging 
the  largest  possible  price  the  public  will  pay. 
But,  strange  to  say,  every  business  in  this  coun- 
try that  has  attempted  a  monopoly  has  found 
its  largest  success  after  it  has  abandoned  all 
notion  of  capturing  the  market  other  than  by 
giving  a  large  service  at  a  low  price.  A 
monopoly  founded  on  service  is  a  legitimate 
monopoly. 

Take  the  automobile  trade.  Under  the  Sel- 
den  Patents,  it  was  thought  that,  by  a  system 
of  licensing,  the  number  of  people  permitted 
to  make  automobiles  would  be  restricted,  and 
all  daiiger  of  glutting  the  market  be  removed. 
But  the  great  progress  in  the  automobile  in- 
dustry has  been  since  that  patent  expired.  To- 
day it  never  occurs  to  the  owners  of  an  auto- 
mobile factory  to  try  to  monopolize  the  mar- 
ket. What  they  try  to  do  is  to  turn  out  a  good 
car  at  a  fair  margin  of  profit.  All  the  com- 
binations of  companies  in  the  industry,  and 
there  are  several  such,  are  successful  only  in 
the  degree  that  they  tend  to  increase  produc- 
tion and  at  the  same  time  decrease  prices. 

An  attempt  at  monopoly  usually  brings  in 
competitors  who  evolve  substitutes  that  take 

73 


The  Organization  of  Modern  Business 

the  place  of  the  monopolized  article.  An  inter- 
esting illustration  of  this  was  lately  given  by 
the  manufacturers  of  an  automobile  horn.  In 
the  beginning  they  thought  they  were  protected 
by  patents  and  charged  a  high  price  for  their 
product  with  the  idea  that  they  had  the  market 
at  their  mercy.  Other  men  saw  the  possibili- 
ties, were  attracted  by  the  field,  attacked  the 
patents  and  broke  them.  The  company  which 
devoted  so  much  of  its  energy  to  forming  a 
monopoly  has  now  a  heartbreakingly  low  profit 
on  its  capital.  Dozens  of  similar  instances  will 
occur  to  you. 

A  fair  profit,  then,  to  go  back  to  that  term, 
is  not  a  figure  which  may  be  settled  by  any  out- 
side authority,  and  it  has  nothing  at  all  to  do 
with  invested  capital.  It  is  fair  that  a  premium 
should  go  to  the  man  who  can  so  turn  capital  as 
to  make  the  largest  possible  percentage  upon 
it.  The  whole  trend  of  scientific  business  is  to 
make  capital  small  in  proportion  to  sales,  and 
then  to  make  capital  move  rapidly.  The  capital 
may  have  to  be  large — for  the  best  business  is 
done  with  the  best  facilities,  and  these  cost 
money — but,  consistent  with  the  sales,  the  capi- 
tal should  be  as  small  as  possible. 

The  profit  upon  capital  as  evidenced,  say,  by 
dividends,  is  a  matter  of  circumstances.  In  a 

74 


What  Is  a  Fair  Profit? 

growing  business  with  large  profits  it  may  be 
unwise  to  declare  any  dividend  at  all  and  wise 
to  put  all  the  earnings  back  into  future  equip- 
ment ;  or  it  may  be  good  policy  to  establish  re- 
serves against  a  fall  in  prices  or  hard  times, 
and  thus  by  bookkeeping,  take  away  any  profit 
on  capital.  Profit  on  capital  is  never  to  be  reck- 
oned as  the  whole  sum  left  after  subtracting 
outgo  from  income.  This  would  jeopardize 
capital  for  the  sake  of  profit — which  is  hardly 
business.  Profit  is  money  that  can  be  safely 
taken  out  of  the  business — it  is  not  a  surplus  to 
be  gained  only  by  liquidation. 

The  moment  we  attempt  to  limit  the  amount 
which  may  be  earned  by  the  capital  invested  in 
business,  we  put  a  premium  upon  waste  and  in- 
efficiency and  tend  to  lessen  the  production  of 
goods. 

Whether  we  try  to  fix  a  price  or  a  profit,  the 
result  is  the  same.  Take  the  fixing  of  prices. 
If  the  constituted  authorities  fix  a  price  to  be 
based  upon  the  average  cost  of  production,  the 
consumer  will  have  to  pay  too  much  and  a  pre- 
mium will  be  put  upon  inefficient  manufactur- 
ing and  selling.  If  the  price  is  fixed  on  the 
basis  of  the  most  efficient  production,  those  who 
are  least  efficient  will  be  forced  to  go  out  of 
business,  the  market  will  become  short  of  that 

75 


The  Organization  of  Modern  Business 

particular  commodity,  and  it  will  not  be  obtain- 
able at  the  government  price.  That  is  what  al- 
ways happens  when  prices  are  fixed  too  low. 

Suppose  a  fair  and  equitable  price  could  be 
fixed.  That  price  could  be  maintained  on  a  fair 
basis  only  by  fixing  the  price  of  every  factor 
which  entered  into  the  fixed  price,  and  these  in 
their  ramifications  would  include  the  price  of 
nearly  every  article  used  by  humanity.  That 
is  not  all.  A  necessary  corollary  to  price-fixing 
is  the  fixing  of  demand.  The  next  step  is  ra- 
tioning and  the  next  communism.  For  when 
you  say  that  an  article  must  be  sold  at  a  cer- 
tain price  and  ordain  that  each  individual  may 
buy  only  a  certain  amount  of  that  article,  and 
by  necessity  extend  that  process  to  all  articles, 
you  have  communism  in  fact  if  not  in  name,  for 
the  State  and  not  the  individual  will  then  be 
controlling  consumption,  distribution  and  ex- 
penditure. 

But  if  we  cannot  fix  a  price,  can  we  not  fix 
a  profit? 

It  is  very  easy  to  talk  about  fixing  profits, 
and,  at  first  glance,  it  seems  quite  logical  to 
regulate  profits  in  manufacturing  on  a  basis 
whereby  the  money  invested  in  an  enterprise 
can  be  considered  and  the  profit  held  down  to 
an  agreed  percentage.  This  is  the  method  fa- 

76 


What  Is  a  Fair  Profit? 

vored  by  the  law-makers  chiefly  because  it  is  the 
mode  of  first  impression  and  requires  no  knowl- 
edge of  business  for  its  application. 

But  fixing  profits  is  infinitely  more  viciously 
destructive  of  economic  life  than  fixing  prices. 
Price-fixing  leads  through  the  socialistic  state 
into  the  communistic  state.  Profit-fixing  leads 
to  chaos. 

It  would  seem  that  the  experiences  during 
the  war  should  provide  a  lesson  for  those  who 
unthinkingly  talk  of  fixing  profits.  You  can  fix 
profits  only  by  a  broad  extension  of  the  cost- 
plus  system,  or  by  an  excess  profits  tax,  or,  if 
you  want  to  make  absolutely  certain  of  confu- 
sion, you  can  combine  both  methods  as  they 
were  combined  during  the  war.  Or  there  may 
be  some  who  would  also  advocate  profit  regula- 
tion on  the  basis  of  invested  capital. 

Take  the  three  methods.  The  cost-plus  sys- 
tem does  not  lower  prices  to  the  community, 
which  is  presumably  the  end  sought.  On  the 
contrary,  it  raises  these  prices,  because  the  less 
efficient  the  manufacturer  the  more  money  he 
will  make.  The  excess  profits  tax,  by  which  it 
was  ingenuously  thought  that  a  man  who  made 
too  high  a  profit  would  be  required  to  turn  the 
excess  back  into  the  coffers  of  the  State,  also 
helps  prices  to  soar,  because  the  man  who  finds 

77 


The  Organization  of  Modern  Business 

himself  making  so  large  a  profit  as  to  incur 
a  heavy  tax  will  wastefully  increase  his  cost  of 
doing  business.  It  is  not  human  nature  cheer- 
fully to  turn  over  a  large  part  of  what  one 
earns  to  some  one  else,  and  extravagance  tends 
always  to  limit  production. 

The  third  method — that  by  which  profits  are 
limited  according  to  capital  invested — is  again 
a  deterrent  to  production,  penalizing  as  it  does 
the  most  vigorous  use  of  capital  by  encouraging 
waste  of  capital.  The  regulation  of  prices  or 
profits  does  not  result  in  lower  prices.  On  the 
contrary,  it  restricts  production  and  raises 
prices. 

You  cannot  animate  by  law :  you  can  only  re- 
strain. And  every  restraint  lessens  and  limits 
production. 

The  only  possible  method  by  which  lower 
prices  can  be  achieved  is  a  method  which  stimu- 
lates production — that  which  gives  more  to 
distribute.  The  more  you  have  to  distribute, 
the  lower  will  be  the  price.  If  some  form  of 
tax  could  be  devised  which  would  be  practically 
confiscatory  to  the  man  who  is  inefficient  in 
business,  then  we  should  stimulate  production 
and  thus  lower  prices.  But  that  is  a  thought 
which  has  not  as  yet  been  developed. 

Most  of  those  who  talk  at  length  on  the  sub- 

78 


What  Is  a  Fair  Profit? 

ject  of  profits  are  not  and  never  have  been  in 
business.  They  are  as  a  rule  wholly  unac- 
quainted with  natural  laws  as  opposed  to  man- 
made  laws.  They  do  not  understand  what  capi- 
tal is  or  how  and  why  it  functions.  The  result 
is  that  this  whole  matter  of  prices  is  ap- 
proached as  if  it  were  almost  a  phase  of 
criminality — as  if  the  making  of  profits  were  a 
habit  that  must  be  stamped  out,  or  at  least 
given  institutional  treatment. 

We  do  not  as  yet,  however,  hail  as  wholly 
virtuous  the  man  who  does  not  know  how  to 
make  a  profit.  No  distinguished  service  medals 
have  to  my  knowledge  been  struck  off  and 
awarded  exclusively  to  bankrupts.  The  fact  is, 
if  a  man  is  incapable  of  making  a  profit,  he 
cannot  remain  in  business.  If  the  State  for- 
bids him  to  and  prevents  him  from  making 
profits,  it  will  drive  him  into  bankruptcy. 

People  are,  at  times,  apt  to  go  astray  on  this 
whole  matter  of  profits  and  prices  because  they 
forget  the  yesterday  when  the  producer  was  be- 
seeching the  consumer  to  buy.  Checking  their 
memories  they  come  to  think  that  prices,  and 
consequently  profits,  are  exclusively  fixed  by 
the  seller — that  the  buyer  is  in  the  way  of  being 
a  patient  under  ether  with  the  seller  as  a  sur- 
geon who  will  operate  as  fancy  leads. 

79 


The  Organization  of  Modern  Business 

The  seller  does  not  fix  the  prices.  The  buyer 
is  ordinarily  the  ultimate  price-fixer.  Day-to- 
day demand  as  compared  with  supply  is  the 
arbiter.  But  the  demand  is  not  an  urge  that  is 
clamorously  insistent  and  ceaseless  until  satis- 
fied. The  demand  is  rarely  one  of  necessity: 
more  likely  it  is  one  of  habit  which  we  trans- 
late into  necessity.  And  habits  are  as  liable  to 
change  as  the  profits  they  make  possible  are 
bound  to  fluctuate. 

Once,  we  had  to  have  linen  paper;  to-day  we 
have  to  have  wood  pulp  paper;  to-morrow  it 
will  be  some  other  kind  of  paper  that  we  need. 
The  point  is  that  the  moment  any  so-called 
necessity  is  so  restricted  in  distribution,  either 
by  lack  of  quantity  or  height  of  price  that  it 
cannot  be  bought  by  even  a  small  fraction  of 
the  people  who  formerly  used  it,  then  the  neces- 
sity for  that  commodity  disappears. 

In  the  new  order  of  business  there  is,  how- 
ever, a  method  by  which  the  seller  may  to  a  de- 
gree fix  the  price.  This  he  can  do  by  so  plan- 
ning his  schedules  of  production  that  his  price 
— and  in  price  it  is  necessary  to  consider  qual- 
ity, for  that  forms  a  part  of  price — is  always 
under  that  of  the  market  made  by  the  inefficient, 
the  general  market.  In  the  new  order  of  busi- 
ness, the  manufacturer  will  fix  his  prices  upon 

80 


What  Is  a  Fair  Profit? 

costs;  with  planned  production,  the  seller  will 
not  have  to  sit  around  waiting  for  a  demand  or 
crying  because  a  demand  has  dwindled  or 
changed.  He  will  drive  steadily  through  the 
market  and  create  a  demand  which  efficient, 
planned  production  will  enable  him  to  fill. 

When  the  demand  exceeds  the  supply  it  is 
difficult  to  take  this  longer  view  of  business. 
But  this  is  fact — sellers'  markets  cannot  exist 
without  buyers. 

Buyers  are  hardly  perennials — not  ever- 
greens. Whenever  something  else  is  found  to 
take  the  place  of  a  necessity,  that  necessity 
never  comes  back  on  the  market  again  as  a 
necessity.  We  gain  production  by  the  dictates 
of  stern  necessity  and  not  otherwise. 

The  man  who  takes  the  long  view  in  business 
will  not  particularly  bother  his  head  about  fair 
prices  and  fair  profits,  but  will  so  endeavor  to 
plan  his  affairs  and  his  production  that  what  he 
believes  to  be  a  necessity  will,  by  his  ready  sup- 
ply of  it,  continue  to  be  a  necessity.  The  buyer 
is  concerned  only  with  getting  a  price  at  which 
he  can  make  money.  That  is,  a  fair  price,  and 
it  is  the  only  price.  The  seller's  profit  at  that 
price  is  his  own  affair.  If  he  understands  his 
business  he  can  constantly  reduce  prices  and  in- 
crease annual  profits. 

81 


CHAPTER  V 

CASHING  IN  ON  THE  PLANT  YOU  HAVE 

EVERY  once  in  a  while  some  one  sends  out  a 
questionnaire  to  a  number  of  presumably  rep- 
resentative members  of  a  trade  inquiring  as  to 
their  costs  of  doing  business,  and  always  some 
extraordinary  figures  result.  In  one  typical 
industry,  comprising  120  manufacturers,  I 
found  a  difference  of  50%  between  the  high  and 
the  low  cost  men — and  this  was  after  assuming 
a  uniform  price  for  the  raw  material  and  a 
standard  weight!  In  other  industries  the  dif- 
ferences are  even  greater.  Unless  you  take  the 
results  of  such  an  inquiry  merely  as  a  starting 
point  from  which  to  begin  an  investigation  of 
what  it  really  does  cost  to  make  an  article,  the 
figures  are  not  more  valuable  than  would  be  a 
collation  of  opinions  concerning  the  age  of  Ann. 
When  a  man  says  to  you  (and  in  any  discus- 
sion of  costs,  or  prices,  or  wages,  or  profits,  he 
will  eventually  make  some  such  declaration) : 
"This  article  cost  me  $3  to  make.  How  am  I 
going  to  lower  the  price? — How  am  I  going  to 

82 


Cashing  In  on  the  Plant  You  Have 

pay  higher  wages? — I  am  not  making  any 
money  as  it  is! — Theories  are  all  right,  but 
these  are  facts! — Now  what  are  you  going  to 
do  about  it?" 

The  man  will  probably  be  right — according  ta 
his  lights.  He  thinks  that  it  costs  him  $3  to 
make  the  article.  But  what  he  thinks  it  costs 
and  what  it  does  cost  may  be  very  different 
figures.  Costs  form  a  basis  for  reflection,  but 
are  not  to  be  arrived  at  by  pure  reason.  What 
he  has  charged  to  that  article  according  to  the 
usual  costing  mode  are  the  interest  upon  all  of 
the  mistakes  of  his  predecessors,  the  money 
that  his  credit  department  should  have  but  did 
not  collect,  the  errors  of  his  sales  force,  and  so 
on  through  a  long  list  of  wastes  until  probably 
if  you  analyze  his  costs  you  will  find  his  $3  cost 
in  detail  exhibits  itself  not  as  a  roster  of  the 
material  and  labor  that  actually  went  into  the 
product,  but  as  a  catalogue  of  waste. 

For  instance,  you  will  probably  find  a  per- 
centage on  the  investment  upon  the  delightful 
assumption  that  " money  is  worth  5%  or  6% 
anyhow,"  when  it  must  be  perfectly  obvious 
that  money  is  worth  only  what  it  earns — which 
may  be  nothing  or  100%.  And  it  is  the  usual 
practise,  from  which,  as  accountants,  we  are 
unable  to  depart  for  the  time  being,  to  charge 

83 


The  Organization  of  Modern  Business 

mortgage    interest    or    other    so-called    fixed 
charges  into  the  product. 

This  is  an  accepted  practise,  but  it  is  not 
logical  beyond  the  point  of  charging  to  the 
article  what  amounts  to  the  wage  of  the  ma- 
chinery, power,  and  housing  necessary  to  pro- 
duce it.  This  wage  is  often  stretched  under  the 
guise  of  an  investment  item  to  contain  the 
wages  of  an  immense  amount  of  machinery, 
power,  and  floor  space  that  have  nothing  at  all 
to  do  with  the  making  of  the  article — indeed, 
some  of  the  machinery  may  be  but  grim  monu- 
ments of  the  past.  And  after  you  have  delved 
into  the  investment  side  of  the  cost,  you  will 
have  to  go  on  further  to  inquire  as  to  how  much 
of  the  labor  charge  went  into  the  article  and 
how  much  into  studied  leisure,  or,  doubtless 
healthful  but  industrially  unnecessary  pedes- 
trianism. 

Samuel  Johnson,  it  will  be  remembered,  while 
passing  through  a  street  could  not  resist  touch- 
ing various  poles  and  lamp-posts  that  lined  his 
route.  He  zigzagged  to  and  fro  and  it  must 
have  taken  him  quite  a  long  time  to  go  through 
a  modest  wood-lot.  His  habit  strikes  one  as 
absurd,  and  yet  many,  perhaps  even  the  ma- 
jority, of  industrial  plants  are  organized  on  the 
Johnsonian  principle  and  they  charge  into  their 

84 


Cashing  In  on  the  Plant  You  Have 

product  not  only  the  postal  peregrinations  but 
also  the  cost  of  the  posts! 

We  can  say  that  it  costs  so  many  dollars  to 
make  a  steel  wrench  and  we  can  let  it  go  at 
that,  but  the  sensible  follow-up  question  is, 
What  sort  of  tools  were  used  in  making  that 
wrench;  was  it  cast  in  a  square  block,  cut  out 
with  a  hand  chisel  and  then  filed  and  ground 
down  to  shape?  Or  was  it  drop-forged?  Did 
the  maker  turn  out  a  single  wrench  or  a  mil- 
lion? In  other  words,  what  equipment  and  ex- 
perience did  he  bring  to  the  task? 

That  inquiry  is  at  the  basis  of  every  cost 
figure.  It  is  absurd  for  any  one  to  announce 
ex  cathedra  that  it  costs  so  many  cents  to  move 
a  ton  a  mile,  that  it  costs  a  fixed  amount  to 
mine  a  ton  of  coal,  or  that  it  costs  a  definite 
sum  to  manufacture  any  article,  for,  unless  we 
propose  that  the  business  intellect  stand  still, 
a  costing  price  is  never  to  be  considered  as  a 
finality  but  merely  as  a  figure  on  which  one 
starts  to  bear  down  after  an  examination  of  all 
of  the  surrounding  circumstances. 

The  industries  which  claim  to  have  fixed 
costs,  such  as  mining  and  transportation,  are 
our  more  backward  brethren  with  whom  tradi- 
tional practise  is  more  highly  esteemed  than 
progress.  Various  outside  forces  including 

§5 


The  Organization  of  Modern  Business 

governmental  regulation  have  tended  to  crys- 
tallize these  industries  by  imposing  on  them 
standards  gained  by  averaging  mediocrity  and 
ability — that  is,  they  have  had  applied  to  them 
the  old  trades-union  rule  of  wage  measurement 
and  thus  have  successfully  killed  initiative. 

Unless  costs  are  considered  as  agents  provo- 
cateurs to  stir  up  trouble  and  uncover  wastes 
they  might  as  well  not  be  taken,  for  otherwise 
they  are  merely  dull  historical  records  with  a 
possible  museum  value.  We  keep  costs  first  to 
find  out  what  we  are  doing  and  then  to  discover 
how  to  do  it  better.  If  we  stop  at  finding  out 
what  we  are  doing  then  our  record  is  not  of 
much  value.  How  much  it  costs  to  chip  a  cast- 
ing with  a  cold-chisel  is  useful  information  only 
when  we  compare  it  with  the  cost  of  doing  the 
same  operation  with  a  modern  planer. 

In  this  book  I  am  pointing  the  way  by  which 
the  manufacturer  may  perform  the  highest 
public  service.  This  I  have  defined  in  unmoral 
terms  by  saying  that  this  service  has  as  its 
components  low  prices  to  the  public  and  high 
profits  to  the  manufacturer — which  are  not  op- 
posed but  inevitably  complementary  factors. 

That  which  usually  prevents  the  attainment 
of  this  wholly  practical  objective  is  the  waste  in 
carrying  through  the  operations  of  manufactur- 

86 


Cashing  In  on  the  Plant  You  Have 

ing  and  selling.  A  very  considerable  part  of 
this  waste  gets  down  to  the  arrangement  and 
use  of  the  plant. 

We  have  learned  a  little  about  plant  arrange- 
ment; we  have  learned  that  a  straight  line  is 
the  shortest  distance  between  two  points.  Now 
we  are  beginning  to  learn  something  about  the 
use  that  we  make  of  the  arrangements. 

The  progress  of  advertising  and  selling  was 
beginning  to  focus  attention  on  plant  use  be- 
fore the  war.  The  right  sort  of  advertising 
and  the  right  sort  of  selling  create  demand — 
that  is,  they  uncover  in  the  individual  a  need 
which  he  did  not  previously  know  that  he  had. 
We  used  to  think  that  creating  a  demand  was 
all  there  was  to  business  and  that  a  stack  of 
unfilled  orders  was  a  sign  of  good  management. 
We  now  know  otherwise ;  we  know  that  an  or- 
ganization out  of  balance  is  not  more  useful 
than  an  automobile  which  has  one  very  fine 
wheel  which  happens  to  be  a  different  size  from 
the  other  three.  This  odd  wheel  may  be  a  per- 
fect thing  to  look  at,  but  the  motor-car  will  not 
run  as  well  as  it  would  with  a  much  poorer 
wheel  but  one  of  the  right  size. 

A  business  has  to  be  in  exact  balance.  The 
advertising  and  selling  must  not  only  sell  to  the 
capacity  of  the  factory  but  to  the  capacity 

87 


The  Organization  of  Modern  Business 

founded  upon  the  article  which  the  factory  can 
make  with  the  highest  efficiency. 

Both  selling  and  advertising  have  reached 
such  a  high  point  of  development  that  the  old 
methods  of  manufacturing  are  no  longer  suited 
to  them.  In  the  old  days  before  advertising,  a 
member  of  the  firm  dropped  his  work  in  the 
office,  went  out  and  sold  something  which  the 
customer  said  he  wanted,  then  came  back  and 
had  the  shop  make  it.  That,  to  a  great  extent, 
is  still  the  method  of  foreign  salesmanship  and 
manufacturing.  They  do  not  aim  to  create  de- 
mands so  much  as  to  supply  demands '  already 
in  existence,  which  is  one  of  the  reasons  that 
American  goods  have,  generally  speaking,  such 
a  small  measure  of  success  in  foreign  markets. 
But  as  salesmanship  developed  and  advertising 
was  added  to  it  the  process  of  creating  a  de- 
mand began — although,  I  think,  unconsciously. 
We  now  know  that  a  demand  is  not  something 
that  a  person  is  born  with  but  is  purely  a  mat- 
ter of  education  and  environment.  For  in- 
stance, the  average  household  abroad  considers 
a  central  heating-plant  as  being  in  the  way  of  a 
luxury.  Here  a  very  considerable  portion  of 
the  population  considers  it  an  absolute  neces- 
sity. Electric  lighting  and  the  telephone  are  in 
like  case.  If  you  run  through  the  list  of  most 

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Cashing  In  on  the  Plant  You  Have 

of  the  things  that  you  use  during  the  day  you 
will  discover  that  you  buy  them  as  a  matter  of 
course,  and  though  you  may  not  have  been  con- 
sciously brought  into  that  habit  through  adver- 
tising and  selling,  yet  as  a  matter  of  fact  you 
have  been.  These  demands  increase  with  each 
newly  educated  generation. 

Take  soap.  Long  ago  people  made  their  own 
soap  at  home.  Later  small  soap-makers  sprang 
up  supplying  neighborhood  trade.  Then  came 
larger  soap-manufacturers  with  special  soaps 
and  to-day  very  few  housewives  know  how  to 
make  soap,  while  the  making  of  soap  is  a  very 
important  "  essential "  industry.  Further  than 
that,  where  the  home  of  a  hundred  years  ago 
had  and  knew  only  one  kind  of  soap,  even  the 
poor  of  to-day  will  have  several  kinds  of  soap 
in  the  house  for  various  purposes.  One  no 
longer  simply  buys  soap ;  one  buys  a  particular 
brand  for  a  particular  purpose.  A  soap-maker 
can  turn  out  a  hundred  different  kinds  if  he 
chooses,  but  the  big  successes  in  soap  manufac- 
ture have  been  attained  by  concentrating  upon 
a  single  brand  and  pushing  that  to  the  utmost. 

The  very  force  of  salesmanship  has  com- 
pelled a  concentration  and  a  specialization  that 
are  not  yet  fully  realized.  A  striking  success 
in  any  one  line  fortunately  brings  in  com- 

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The  Organization  of  Modern  Business 

petitors  who  sell,  if  short-sighted,  purely  on  a 
price  basis  against  the  manufacturer  who  was 
first  in  the  field,  but  who,  if  far-sighted,  sells 
on  both  price  and  quality.  And  the  manufac- 
turer first  in  the  field  has  then  to  take  stock  of 
himself  to  see  if  he  is  getting  out  the  best 
product  he  can  and  at  the  lowest  possible  price. 
Price  alone  is  never  a  sales  argument;  price  is 
not  to  be  thought  of  merely  as  first  cost. 

Price  and  quality,  considered  together,  form 
the  real  manufacturing  problem.  You  can  put 
cheap  materials  and  cheap  labor  through  ill- 
suited  machinery,  turn  out  a  poor  product,  and 
sell  it  at  a  low  price.  There  is  no  permanency 
in  that  sort  of  business.  The  real  business 
comes  from  putting  the  very  best  materials 
through  exactly  fitted  machinery  managed  by 
skilful  labor  so  that  an  absolutely  first-class 
article  will  go  through  at  a  minimum  cost. 
Then  only  can  you  sell  a  good  thing  at  a  low 
price,  make  a  fair  profit,  and  establish  a  solid 
trade. 

In  this  high  development  the  plant  becomes  a 
tool  and  the  sales  force  that  once  just  went  out 
and  sold  has  to  sell  to  what  that  tool  can  make. 
When  you  have  acquired  that  tool  you  will 
know  how  to  fix  costs.  You  will  not  be  up 
against  the  usual  costing  problem  of  finding  out 

90 


Cashing  In  on  the  Plant  You  Have 

how  much  time  and  money  it  takes  to  file  down 
a  thousand  castings.  You  will  have  a  machine 
that  will  do  that  work.  This  machine  will  not 
merely  be  a  machine ;  it  will  be  a  tool  for  that 
particular  job.  If  a  workman  has  a  thousand 
pieces  to  gage  he  will  do  them  more  quickly 
with  a  fixed  gage  than  with  a  variable  one,  and 
it  is  exactly  the  same  with  the  plant  and  every 
portion  of  it. 

For  a  time,  under  the  influence  of  eloquent 
welfare  workers,  we  began  to  think  that  a  plant 
was  a  place  where  the  workers  might  be  happy 
at  their  work;  a  few  enthusiasts  seemed  to 
think  that  the  perfect  productive  ideal  had  been 
reached  when  the  band  played  merrily,  the 
workers  sang  at  their  tasks,  and  all  present  had 
a  pleasant  time.  Of  course  the  workers  ought 
to  be  happy,  and  the  recreational  side  of  any 
manufacturing  institution  is  highly  important, 
but  the  primary  objective  of  a  plant  is  to  turn 
out  goods  and  not  to  promote  choral  societies. 
A.  man  will  get  more  real  joy  out  of  an  arrange- 
ment of  machinery  that  enables  him  to  double 
his  wages  without  additional  effort  and  which 
permits  him  to  exercise  a  certain  workmanship 
than  he  will  out  of  any  scheme  which  seeks  to 
combine  relaxation  and  work  on  the  theory  that 
there  is  no  fun  in  work.  We  do  not  realize  that 

91 


The  Organization  of  Modern  Business 

providing  an  amusement  for  the  worker  at  his 
task  is  a  confession  of  an  inability  to  make  the 
task  of  itself  interesting  and  rests  on  exactly 
the  same  theory  as  the  ancients  held  when  they 
provided  a  slave  to  chant  a  rhythm  for  his  fel- 
lows at  the  galleys. 

The  southern  cotton-mills  that  employ  ne- 
groes find  they  work  hardest  while  singing. 
This  is  explainable.  The  negroes  have  no  in- 
terest whatsoever  in  their  work.  A  negro  will 
tend  a  knitting-machine  for  ten  years  without 
having  aroused  in  him  even  a  faint  curiosity  as 
to  why  the  machine  knits.  The  machine  is  to 
him  a  harmless  sort  of  a  devil  with  a  strange 
penchant  for  knitting.  Being  constitutionally 
tired  he  becomes  intensely  so  when  looking  at 
the  machine.  He  gets  interested  in  the  singing 
and  develops  an  exuberance  which  has  to  find  a 
vent  in  a  quicker  movement  of  the  hand — he 
dances  to  the  machine  the  way  people  chew  to 
music  in  a  restaurant. 

As  we  make  manufacturing  more  mechani- 
cally perfect  and  subdivide  operations  we  can 
with  prevision  make  them  constantly  more  in- 
teresting. The  kind  of  plant  I  am  talking  about 
in  which  all  of  the  operations  are  repetitive  and 
in  which  waste  is  at  a  minimum  is  more  truly 
humanitarian  than  that  which  sets  itself  up 

92 


Cashing  In  on  the  Plant  You  Have 

first  as  a  human  institution  and  only  sec- 
ondarily as  a  unit  of  production,  for  true  free- 
dom in  this  world  is  attained  through  work. 
The  coordination  of  plant  and  product  makes 
for  the  greatest  liberty. 

A  couple  of  Turkish  hamals  can  together 
carry  a  piano,  but  I  doubt  if  they  find  much 
joy  in  their  work.  A  motor-truck  can  carry 
half  a  dozen  pianos  and  the  chauffeur  has  a 
man's  job.  He  is  paid  more  money  than  a 
dozen  hamals.  They  can  barely  exist  on  their 
earnings,  while  the  chauffeur  has  a  compara- 
tively full  life.  At  the  same  time  it  costs  less 
to  deliver  the  pianos  by  gasoline-power  than  by 
man-power.  That  chauffeur  may  merely  be  the 
attendant  of  his  machine ;  it  may  be  his  master 
and  he  may  churlishly  and  listlessly  operate  it 
complaining  that  he  is  a  slave  and  that  there  is 
no  joy  in  his  life,  and  he  will  probably  go  right 
on  complaining  until,  while  contemplating  his 
woes,  he  pitches  the  machine  over  a  bank  and 
breaks  his  neck.  Or  again  he  may  make  him- 
self master  of  that  motor  and  have  all  the  fun 
of  directing  a  great  piece  of  machinery.  The 
progression  from  hand  to  machine-labor  can  al- 
ways be  a  progression  in  intelligence.  It  need 
never  be  a  retrogression.  There  is  no  progress 
in  wasted  human  effort. 

93 


The  Organization  of  Modern  Business 

Delivering  pianos  on  man-back  is  a  gross 
example  of  industrial  waste.  But  many  of  our 
manufacturing  plants  arrange  for  wastes  that 
are  as  great — if  not  so  obvious. 

Look  at  a  few  instances  in  the  "hamal"  class. 
In  a  salt  works  50-pound  bags  of  salt  went 
through  these  operations:  First,  a  man  held  a 
bag  under  a  spout  until  it  was  filled  with  salt. 
He  lifted  that  50  pounds  to  a  truck.  Another 
man  wheeled  the  truck  to  a  scale.  A  third  man 
lifted  the  bag  to  the  scale  and  corrected  the 
weight.  A  fourth  man  lifted  the  bag  from  the 
scale  to  a  sewing-machine  four  feet  away, 
sewed  the  top,  and  lifted  the  bag  to  another 
truck.  Here  we  have  four  men  ostensibly  en- 
gaged in  bagging  salt  but  mainly  occupied  in 
juggling  a  50-pound  sack.  A  not  very  compli- 
cated machine  could  fill  those  bags,  weigh  them, 
stitch  them,  and  deliver  them  to  a  conveyor 
which  would  take  them  to  the  store  or  shipping- 
room.  The  owner  of  that  plant  could  truly  say 
that  he  could  not  afford  to  pay  those  men  much 
— for  weight-lifting  is  not  a  lucrative  profes- 
sion. But  he  could  easily  afford  to  pay  one 
man  tending  that  machine  a  good  wage  and  the 
other  three  men  could  be  released  into  some 
form  of  productive  industry.  It  does  not  make 

94 


Cashing  In  on  the  Plant  You  Have 

for  the  freedom  of  man  to  engage  him  in  use- 
lessly raising  and  lowering  a  bag  of  salt. 

That  factory  abounded  in  other  wastes; 
whenever  they  did  use  a  machine,  they  managed 
to  put  that  machine  in  such  a  place  that  the  un- 
necessary trucking  and  handling  fully  balanced 
any  advantage  gained  by  the  use  of  the  ma- 
chine. In  another  factory  we  discovered  that 
in  the  process  of  final  assembly  which  required 
14  consecutive  operations,  43%  of  the  men's 
time  was  taken  in  handling  and  carrying. 
There  the  solution  proved  to  be  an  apron-con- 
veyor table ;  17  of  the  squad  of  51  men  were  re- 
leased, production  went  up  12%,  and  the  com- 
pany saved  $18,000  a  year  on  assembly  alone. 

The  storage  of  metal-parts  was  baffling 
another  corporation;  they  felt  that  they  had  to 
put  up  a  building  for  storage.  Now  you  can 
nearly  always  find  new  and  economical  storage 
methods.  We  did  so  here.  We  found  that  in 
one  section  of  the  store-room  out  of  318  "tote" 
boxes  only  134  were  full;  the  others  varied 
from  one-quarter  to  three-quarters  full.  They 
actually  needed  only  234  boxes.  The  boxes  they 
had  were  of  heavy  wood.  We  found  that  20% 
of  the  floor-space  was  taken  up  by  the  wood  of 
the  boxes.  The  purchase  of  sheet-steel  boxes 

95 


The  Organization  of  Modern  Business 

of  smaller  size  gave  that  company  all  the  stor- 
age space  they  needed  without  putting  up  an 
additional  building.  A  new  building  would 
have  been  waste — yet  in  nine  cases  out  of  ten 
it  would  have  gone  up  if  the  funds  had  been  in 
hand. 

In  another  plant  the  boxes  used  to  carry 
parts  to  the  machines  were  too  large  for  one 
man  to  move ;  consequently  the  operators  at  the 
machines  shoveled  the  parts  into  smaller  boxes 
which  they  could  more  easily  manage.  We 
found  that  this  quite  useless  reboxing  took 
away  from  26%  to  34%  of  what  should  have 
been  the  productive  time  of  the  operators. 

In  a  punching  operation  in  this  same  shop 
we  discovered  that  the  worker  took  five  min- 
utes to  find  a  small  box  to  carry  the  parts  he 
needed  and  then  four  minutes  more  to  transfer 
the  parts  from  a  big  box  into  the  little  one.  The 
actual  punching  time  for  the  lot  was  twenty-one 
minutes,  so  that  the  preliminary  waste  repre- 
sented a  loss  of  40%  of  the  operator's  time.  We 
adopted  a  small  standard  metal  box  which  could 
be  handled  by  one  man  even  when  filled  with  the 
heaviest  parts;  all  the  boxes  were  alike,  hence 
he  could  take  the  rough  parts  from  one  box 
and  drop  them  into  another  right  at  hand,  and 
the  boxes  could  be  kept  at  hand  because  their 

96 


Cashing  In  on  the  Plant  You  Have 

tapering  sides  allowed  them  to  be  stacked  in 
nests. 

These  boxes  fitted  the  store-room  shelves  so 
that  the  parts  could  be  stored  without  reboxing, 
and  the  boxes  being  all  of  one  size  an  approxi- 
mate count  of  the  pieces  could  be  had  merely  by 
counting  the  boxes.  Here,  adopting  a  standard 
box  at  a  slight  expense  saved  one-third  of  the 
time  of  the  men.  In  other  plants  I  have  seen 
savings  that  vary  from  15%  to  50%  of  the  pro- 
ductive time  made  by  providing  the  proper 
sort  of  "tote"  boxes. 

Or  take  another  equally  simple  expedient :  in 
a  shop  making  iron  gratings  the  molders  filed 
past  the  cupola,  received  in  turn  a  pot  of  mol- 
ten iron,  and  returned  to  ladle  the  iron  into  the 
molds.  All  the  men  could  not,  of  course,  have 
their  working-spots  at  the  same  distance  from 
the  cupola,  some  naturally  had  to  travel  further 
than  the  others,  and  since  there  were  sixty 
molders  in  the  room  often  five  or  more  were 
lined  up  waiting  their  turn  at  the  cupola.  The 
solution  was  to  group  the  men  and  run  pots  of 
metal  out  on  a  monorail  to  the  various  groups. 

These  seem  to  be  trivial  instances;  they  are 
trivial  in  the  sense  that  they  were  corrected 
almost  by  gestures,  but  they  illustrate  that  it  is 
not  always  the  great  drastic  changes  which  go 

97 


The  Organization  of  Modern  Business 

far  toward  getting  the  utmost  out  of  a  plant. 
In  these  days  an  owner  will  commonly  see  the 
need  for  good  machinery;  usually  he  will  over- 
estimate that  need  and  put  in  more  stuff  than 
he  actually  needs.  But  what  he  does  not  often 
see  is  that  the  very  best  machinery  loses  a  fair 
part  of  its  value  if  it  is  not  kept  running  con- 
tinuously— and  that  it  is  conspicuous  waste  to 
put  twenty  thousand  dollars  into  an  improved 
mechanism  and  then  have  the  operator  waste 
one-half  of  his  time  and  the  time  of  the  machine 
in  trivial  by-tasks. 

In  order  to  get  just  the  right  plant  in  every 
respect  it  is  by  no  means  always  necessary  to 
erect  a  new  building.  Unless  the  structures  in 
use  are  dangerously  weak  or  are  so  ill-assorted 
that  nothing  much  can  be  done  with  them,  it  is 
commonly  better  to  make  the  most  of  what  you 
have  than  to  let  yourself  in  for  a  great  building 
project.  And  no  building  should  be  undertaken 
unless  finances  can  be  provided  so  that  exactly 
the  right  building  may  be  put  up.  I  recall  a 
building  in  which  the  owner  made  a  change  in 
design  in  order  to  save  $10,000;  since  then  he 
has  been  spending  $3,000  a  year  for  useless 
trucking  that  would  not  have  been  required  had 
the  right  building  been  put  up  in  the  first  place. 

98 


Cashing  In  on  the  Plant  You  Have 

That  man  had  better  have  awaited  the  time 
when  sufficient  funds  were  at  hand. 

The  big  thing  is  to  cash  in  on  the  plant  that 
you  have,  and  this  often  involves  only  a  re- 
arrangement and  a  slight  addition  or  revamp- 
ing of  present  equipment  with  a  drastic  going- 
over  of  -the  product  sold  and  the  methods  of  the 
manufacturing  and  sales  force. 

Sometimes  a  small  change  in  design  will  ac- 
complish much ;  we  saved  a  third  of  the  cost  of 
one  operation  by  shifting  the  position  of  certain 
holes  that  had  to  be  bored  in  the  pieces — no  real 
reason  existed  for  having  them  in  the  incon- 
venient spots  that  time  had  honored.  Or  again 
the  saving  may  be  had  with  a  gang  re-arrange- 
ment without  a  change  in  the  layout,  as  in  a 
warehouse  store-room  where  we  found  that  a 
better  rating  of  the  men  and  an  allotment  of 
task  and  bonus  spurred  on  19  men  to  do  with 
ease  the  work  that  33  men  had  found  trouble  in 
doing  before.  In  a  machine-shop  the  produc- 
tion of  a  planer  was  increased  216%  by  putting 
unworked  and  completed  parts  where  they 
would  be  out  of  the  way  of  the  operator,  by 
shifting  the  planer  away  from  a  trucking  track 
which  it  was  overhanging  and  by  paying  the 
operator  a  small  bonus.  In  a  tableware  fac- 

99 


The  Organization  of  Modern  Business 

tory,  plating  the  product  took  up  ahout  one- 
fourth  of  the  payroll;  this  work  was  so  slowly 
done  that  the  management  thought  of  putting 
in  automatic  cleaning  and  plating  tanks ;  it  was 
found,  however,  that  these  would  require  for  at- 
tendance about  as  many  men  as  before.  In- 
stead, we  rearranged  the  work,  put  in  a  wage 
incentive,  and  not  only  saved  the  $15,000  that 
would  have  gone  into  new  machinery,  but  took 
the  men  to  a  point  some  20%  above  what  the 
machinery  could  have  done.  There  machinery 
would  have  been  a  waste. 

One  might  go  on  endlessly  with  these  smaller 
reforms  and  then  branch  out  into  what  can  be 
accomplished  when  the  plant  is  exactly  fitted 
for  the  work — when  you  know  in  advance 
exactly  what  you  want  and  then  build  a  roof 
over  the  planned  work. 

But  the  point  that  I  want  to  make  is  that  the 
highest  and  most  profitable  efficiency  is  at- 
tained not  by  scattering  but  by  concentrating  on 
a  single  product,  and  then  it  is  up  to  the  man- 
agement to  see  that  they  cash  in  on  the  tool  or 
arrangement  that  they  have  devised.  This 
rigidity  of  plant  will  in  time  become  so  marked 
that  the  executives  will  no  more  think  of  taking 
on  a  dissimilar  line  to  keep  the  plant  going  than 
the  manager  of  a  foundry  would  think  of  ac- 

100 


Cashing  In  on  the  Plant  You  Have 

cepting  a  large  order  for  fancy  seeing.  If  tl-.e 
salesmen  find  that  they  can  dispose  of  a  new 
line,  or  experience  gained  by  investigations, 
observation  or  advertising  reveals  profitable 
side-lines,  then  the  question  to  be  decided  will 
be  whether  these  new  articles  had  not  best  be 
manufactured  in  a  separate  plant. 

When  Beechnut  went  into  the  making  of 
ginger  ale,  the  manufacturers  built  a  new  plant 
for  the  ginger  ale;  Ford  did  not  attempt  to 
make  tractors  in  his  automobile  plant — he  built 
a  new  plant.  The  modern  plant,  producing  at 
a  high  rate  and  low  cost,  cannot  and  should  not 
do  odd  jobs;  it  is  a  fixed  instrument  designed 
for  a  fixed  and  definite  purpose  and  it  can  be 
readjusted  and  diverted  to  foreign  purposes 
only  with  difficulty  and  needless  expense. 

But  at  once  comes  the  objection  that  the  work 
may  be  seasonal  and  that  the  one-object  plant 
will  have  to  remain  idle  during  the  dull  sea- 
sons. This  I  do  not  at  all  grant.  Usually  the 
seasonal  product  can  be  made  an  all-the-year- 
round  one,  but  if  this  cannot  well  be,  then  a  new 
and  supplementary  line  can  be  taken  on,  always 
giving  first  regard  to  plant  adaptability.  A 
manufacturer  of  fly-screens  found  that  he  could 
in  the  off-season  make  a  line  of  billiard  tables 
and  game-boards  that  could  be  made  on  nearly 

101 


The  Organization  of  Modern  Business 

the  same  -machinery  as  the  screens.  A  maker 
of  mechanical  toys  who  found  that  his  trade 
could  not  be  sustained  except  for  the  holidays, 
branched  out  into  small  electric  motors;  this 
was  not  a  wise  choice  from  the  plant  stand- 
point, for  the  demand  for  motors  proved  to  be 
year-round  and  so  large  that  he  has  had  to  put 
up  a  new  factory  for  the  toys  and  is  again  look- 
ing about  for  a  complementary  product. 

Thus  we  find  that  selling  is  not  one  depart- 
ment, and  making  another.  The  two  have  to 
work  in  the  very  closest  inter-relation  and  har- 
mony if  that  good  business  is  to  be  developed 
which  is  expressed  in  service  to  the  public  and 
which  consists  of  low  prices  and  high  profits 
with  correspondingly  high  wages.  There  is  no 
other  way.  The  new  selling  and  the  new  ad- 
vertising sell  the  product  of  a  tool  and  not 
simply  a  product. 


J02 


CHAPTER  VI 

FALLACIES    OF    MANAGEMENT 

BEENAED  SHAW  once  described  a  high  starched 
collar  as  a  bit  of  "  cloth  filled  with  stiff  white 
mud,"  and  not  long  since  in  an  English  news- 
paper appeared  the  following  affecting  item: 
"Falling  down  in  a  fit,  Major  Gerald  Pilcher, 
of  Ebury  Street,  Pimlico,  was  suffocated  by  the 
stiff  high  collar  which  he  wore." 

Sometimes  industrial  organizations  button 
themselves  into  such  high,  stiff,  starched  white 
chokers  of  rigid  policy  that  if  they  happen  to 
fall  into  any  one  of  the  several  kinds  of  fits 
that  an  industrial  organization  may  fall  into, 
they  pitifully  suffocate.  The  most  frequent  fits 
are  those  which  arise  from  what  is  known  as 
"labor  trouble" — that  is,  from  a  failure  to  ap- 
preciate the  place  of  the  human  element  in  in- 
dustry. 

It  ought  to  be  evident  that  an  industrial  plant 
is  only  an  inconveniently  sorted  mass  of  junk 
unless  some  one  is  around  to  see  that  the  bricks, 
mortar  and  machinery  become  tools  of  produc- 

103 


The  Organization  of  Modern  Business 

tion.  Up  to  date  we  have  not  been  able  to  erect 
anything  in  the  way  of  a  gentle  and  obedient 
Frankenstein  monster  that,  quite  untended,  will 
rattle  its  fabricated  bones  for  the  benefit  of  the 
fabricator. 

To  put  the  matter  more  concretely,  an  indus- 
trial adventure  needs  the  services  of  human 
beings.  Or,  looking  at  it  from  another  angle, 
an  industrial  organization  exists  only  because 
it  serves — not  that  it  may  serve — human  be- 
ings; in  order  to  perform  that  service  it  re- 
quires certain  services  from  all  classes  of 
human  beings. 

A  lack  of  recognition  of  the  fact  that  really 
we  are  all  engaged  in  service,  however  much 
some  of  us  at  times  would  like  to  think  we  are 
principally  engaged  in  being  served,  is  back  of 
a  good  deal  of  the  misconception  of  the  relation 
of  the  human  element  in  business.  When  we 
speak  of  the  human  element  we  are  apt  to  think 
only  of  the  men  who  work  for  wages,  and  of 
their  pay.  This  gets  us  into  trouble  right  at  the 
outset,  for  although  executives  and  managing 
directors  do  not  commonly  strike  and  march 
around  the  place  bearing  placards,  they  are 
just  as  human  and  just  as  much  a  part  of  the 
problem  of  the  human  element  in  industry  as 
are  those  men  who  work  strictly  for  wages. 


Fallacies  of  Management 

And  in  the  same  degree,  the  consumer  of  mer- 
chandise— employers  of  a  sort — have  a  vital 
industrial  function  to  perform. 

Executive  incapacity  or  disability  is  respon- 
sible for  a  larger  share  of  industrial  dis- 
quietude than  most  of  us  realize.  Something 
akin  to  the  "divine  right  of  kings "  has  sur- 
rounded the  managerial  gentry  with  a  "don't 
touch  me"  halo.  That  they  are  no  more  im- 
mune from  criticism  or  exempt  from  responsi- 
bility than  any  workman  in  the  ranks,  seldom 
occurs  to  us. 

When  the  wage  earners  are  chronically  sullen 
and  dissatisfied  you  will  nearly  always  discover 
that  the  executives  do  not  know  their  jobs  any 
too  well.  When  an  army  fails,  the  general  is 
cashiered.  The  blame  is  not  put  upon  the  men 
in  the  ranks  and  although  the  analogy  is  by  no 
means  perfect  and  the  man  at  the  bench  is  not 
wholly  comparable  to  the  private  in  the  ranks, 
yet  the  matter  of  leadership  is  quite  as  impor- 
tant in  an  industrial  as  in  a  military  army.  It 
is  easier  to  pass  the  buck  to  the  men  in  the 
shop,  to  the  unions,  to  radical  agitation,  or  to 
any  of  the  familiar  causes  than  squarely  to  face 
the  fact  that  what  we  commonly  know  as  a 
labor  problem  is  often  only  a  management 
problem  and  that  the  selection  of  capable 

105 


The  Organization  of  Modern  Business 

managers  will  go  far  toward  insuring  a  large 
measure  of  cooperation  with  the  wage  workers. 

A  great  many  people  have  lost  their  bearings 
on  labor  and  on  the  conduct  and  business  of 
men  generally.  They  seem  to  think  that  "  wrin- 
kles "  will  bat  for  common  sense.  When  J.  P. 
Morgan  was  looking  around  for  a  man  to  head 
the  steel  corporation  he  rather  bitterly  re- 
marked to  the  general  effect  that  to  find  a  man 
with  the  executive  ability  for  the  place  was 
nothing  compared  to  the  difficulty  of  finding  a 
man  who  would  not  give  up  too  much  of  his 
time  to  spending  the  salary  that  went  with  the 
place.  Eight  there  he  touched  upon  one  diffi- 
culty which  is  common  to  all  grades  of  em- 
ployees whether  they  be  presidents  or  coal 
heavers. 

The  president,  whenever  he  is  receiving  a  suf- 
ficiently large  salary,  as  a  rule,  likes  to  set  up 
as  something  in  the  way  of  a  merchant  prince 
with  the  emphasis  on  the  "prince."  His  regal 
duties  frequently  leave  him  so  little  time  for  his 
job  as  president  that  he  is  brought  to  complain 
that  the  organization  of  modern  industry  neces- 
sarily takes  the  chief  executive  far  away  from 
the  actual  worker.  It  is  not  the  organization 
of  industry  but  the  organization  of  the  execu- 
tive that  takes  him  away.  This  thought  will 

106 


Fallacies  of  Management 

inevitably  spread  throughout  the  whole  organi- 
zation, and  whereas  the  president  may  be  big 
enough  to  be  both  a  merchant  and  a  prince  at 
the  same  time,  it  is  perfectly  certain  that  most 
of  the  understrappers  will  not.  There  is  no 
spectacle  more  likely  to  madden  the  employer 
than  that  of  a  young  man  receiving  $15,000  or 
$20,000  a  year  and  who  is  feeling  his  oats  in- 
stead of  looking  after  his  job. 

An  organization  takes  its  tone  from  the  head. 
If  the  chief  executive  considers  the  shop  prin- 
cipally as  a  starting  point  from  which  to  go 
somewhere,  the  other  executives  will  have  the 
same  attitude  and  put  it  into  practise  on  every 
possible  occasion,  and  going  down  the  line  you 
will  find  that  the  man  in  the  shop  is  perfectly 
cognizant  of  the  attitude  of  his  superiors  in 
authority  and  that  he  has  similar  if  not  the 
same  temptations  and  desires.  Because  he  can- 
not gratify  them  he  is  very  apt  to  talk  about 
"absentee  ownership, "  or  as  he  may  less  ele- 
gantly put  it,  "working  for  that  guy  down  at 
Palm  Beach." 

A  man  is  more  or  less  entitled  to  do  what  he 
likes  with  his  money,  and  there  is  a  tendency  on 
the  part  of  our  longer-headed  leaders  of  indus- 
try, whenever  they  think  they  can  use  their  time 
to  better  personal  advantage  away  from,  rather 

107 


The  Organization  of  Modern  Business 

than  in  the  place  where  the  money  comes  from, 
and  at  the  same  time  do  not  care  to  retire  en- 
tirely from  management,  to  create  offices  for 
themselves  without  duties  and  put  in  charge 
men  who  will  stay  on  the  job — men  who  are 
empowered  with  full  authority  concerning 
everything  except  the  broader  financial  deci- 
sions. These  absentee-executives,  in  other 
words,  delegate  to  the  man  on  the  spot  the  man- 
agement of  the  human  element. 

It  is  the  opinion  of  all  the  bigger  men  of  to- 
day that  the  point  to  be  considered  in  appoint- 
ing a  man  who  will,  by  the  nature  of  his  posi- 
tion, be  called  upon  to  exercise  large  discre- 
tionary powers,  is  first  of  all  his  ability  to  han- 
dle men.  It  is  pretty  well  recognized  that  even 
the  largest  technical  ability  can  be  purchased 
at  a  price.  It  is  becoming  as  well  recognized 
that  the  really  difficult  sort  of  man  to  find  is 
one  who  ean  manage  those  about  and  under 
him — and  that  his  price  is  about  what  he  asks. 

Because  our  engineering  and  technical 
schools  train  their  students  in  the  handling  of 
things  rather  than  in  the  handling  of  people, 
there  is  at  present  a  great  dearth  of  men  who 
can  handle  men.  One  of  the  most  pressing 
tasks  facing  the  industrial  leaders  of  to-day  is 
to  supply  this  lack. 

108 


Fallacies  of  Management 

Now  let  us  see  what  is  the  relationship  be- 
tween service  and  leadership,  and  whether  what 
we  call  the  problem  of  capital  and  labor  may 
not  be  accurately  described  as  an  equitable  allo- 
cation of  rewards  for  service. 

Most  of  us  have  an  erroneous  idea  of  capital ; 
we  think  of  it  as  personal  rather  than  as  imper- 
sonal, as  a  rich  man  rather  than  as  a  collection 
of  things.  That  is,  we  confuse  the  ownership 
with  the  thing  itself.  I  say  "we"  inclusively, 
for  I  do  not  grant  that  the  proletarian  has  a 
more  distorted  view  of  capital  than  has  the 
capitalist.  There  are  misconceptions,  supersti- 
tions and  delusions  on  both  sides,  and  until 
these  are  cleared  away  there  will  always  be 
more  or  less  friction  and  misunderstanding — 
much  of  it  directly  traceable  to  the  misuse  of 
the  commonest  terms. 

Only  an  inconsequent  amount  of  capital  is 
represented  in  currency.  We  are  supposed  to 
have  only  enough  currency  to  facilitate  the  ex- 
change of  the  fruits  of  production,  and  although 
many  members  of  the  community  have  a  high 
regard  for  quantities  of  currency  piled  in  heaps, 
that  is  only  because  the  usual  productivity  of 
the  world  is  such  that  there  are  things  which 
this  money  can  be  exchanged  for.  We  are  so 
accustomed  to  needing  money  for  business  pur- 

109 


The  Organization  of  Modern  Business 

poses  that  we  grow  to  think  that  business  de- 
pends on  money,  when,  as  a  matter  of  fact,  the 
value  of  money  depends  upon  business. 

Unless  there  is  production  and  a  consequent 
exchange  of  things  there  is  no  use  for  a  medium 
of  exchange.  As  production  slackens  the  cur- 
rent medium  of  exchange  becomes  less  and  less 
valuable  until  we  are  much  like  a  man  adrift 
on  the  high  seas  with  a  great  bag  of  gold  but 
without  either  food  or  water. 

Now  to  go  back  a  little — capital  is  the  differ- 
ence between  production  and  consumption  and 
it  depends  for  its  value  upon  being  again  put 
into  production.  A  miser,  for  instance,  who 
hides  his  gold  is  only  a  collector  with  a  taste 
running  to  money  instead  of  postage  stamps. 
To  attain  production,  we  must  have  at  some 
stage,  or  more  correctly,  many  stages,  the  busy, 
active  human  being.  If  we  have  no  capital— 
that  is,  no  excess  of  production  over  consump- 
tion— then  there  will  be  neither  employment 
for  human  beings  nor  the  fruit  or  produce  of 
such  employment.  Each  man  has  then  to  go 
out  and  grub  his  own  livelihood  just  as  do  the 
animals.  He  digs  and  grinds  just  enough  for 
his  own  daily  needs  and  no  surplus  for  the  sus- 
tenance of  others,  or  for  the  building  of  the 
nebulous  entity  which  we  loosely  call  capital. 

110 


Fallacies  of  Management 

But  when  capital  accumulates  in  the  hands  of 
an  individual  or  a  community,  it  is  necessary 
to  get  some  one  to  use  that  capital  that  it  may 
be  made  productive. 

If  the  capital  investment  is  small,  consisting 
— to  use  a  mechanical  instead  of  an  agricultural 
illustration — say,  of  an  ax,  then  the  owner  him- 
self can  use  the  capital,  but  when  that  owner 
becomes  the  possessor  of  two  axes  he  has  to 
hunt  up  some  one  who  will  agree  to  use  the 
second  ax,  and  that  second  man  will  give  that 
consent  only  when  what  he  can  gain  by  the  use 
of  the  ax  bids  fair  to  exceed  what  he  can  gain 
by  grubbing  around  on  his  own  hook.  You  can 
say  that  this  second  man  works  for  capital,  but 
you  will  be  more  accurate  if  you  say  that  he 
works  with  capital.  And  just  as  the  worker 
with  the  ax  will  not  consent  to  work  unless  he 
can  get  more  with  it  than  without  it,  so  the 
owner  of  the  ax  will  have  no  reason  for  em- 
ploying some  one  to  use  it  unless  he,  too,  gains 
by  the  transaction.  If  putting  his  ax  out  to 
work  is  an  expense  instead  of  a  gain  to  the 
owner  he  will  keep  the  ax  at  home  and  idle. 

If  there  is  only  this  single  unemployed  ax  in 
the  community — and  it  is  very  easy  for  a  man 
using  the  ax  to  make  more  with  it  than  without 
it,  there  will  be  competition  for  the  use  of  the 

111 


The  Organization  of  Modern  Business 

ax — that  is,  the  owner  of  the  ax  will  get  more 
than  the  user  of  it ;  but  if  that  community  be- 
comes prolific  of  axes,  as  it  undoubtedly  will  if 
such  a  large  income  is  made  out  of  ax  owner- 
ship, then  there  will  shortly  be  more  axes 
around  than  there  are  people  to  work  them  and 
instead  of  the  man  without  an  ax  bidding  for 
a  chance  to  use  one,  the  owners  of  the  axes 
will  be  bidding  for  people  who  will  for  a  con- 
sideration consent  to  act  as  ax-wielders. 

And  there  you  have  in  its  simplest  form  the 
relation  between  capital  and  labor. 

We  do  not  always  keep  this  relation  clear. 
So  many  details  from  time  to  time  enter  in  to 
confuse  the  issue  and  we  get  so  far  away  from 
the  primary  facts  which  govern  the  possession 
and  use  of  the  ax  that  we  soon  find  ourselves 
straying  mischievously  far  from  the  pivotal, 
essential  point. 

Almost  before  we  know  it,  we  are  talking 
about  the  ownership  of  capital  rather  than  its 
use.  For  instance,  if  the  ax-wielders  vastly 
outnumber  the  axes  and  bid  against  each  other 
on  the  downward  scale  for  the  right  to  use 
them,  we  talk  about  the  degradation  of  society 
and  the  slavery  of  the  worker.  If,  on  the  other 
hand,  there  is  a  great  surplus  of  axes,  the 
worker  turns  around  and  puts  the  ax  owner 

112 


Fallacies  of  Management 

through  a  course  of  sprouts  and  we  talk  about 
the  tyranny  of  labor. 

It  must  first  be  made  unmistakably  clear 
that  our  real  difficulties  are  traceable  not  to  the 
ownership  of  capital  but  to  the  distribution  of 
its  fruits,  for  the  moment  that  capital  becomes 
productive — that  is,  of  use  to  its  owner — it 
must  bid  for  labor.  In  other  words,  it  becomes 
almost  automatically — and  to  the  advantage  of 
everybody — available  for  community,  as  distin- 
guished from  individual,  use,  and  it  does  not 
really  make  much  difference  who  is  the  owner. 
If  there  is  a  great  amount  of  capital  it  will  re- 
quire for  its  productiveness  the  services  of  a 
great  number  of  people.  The  owner  of  capital 
would  under  such  circumstances  have  to  bid  for 
the  services  of  a  large  number  of  cooperating 
individuals,  and,  because  of  this  division  of 
labor  into  a  larger  number  of  units,  he  would 
necessarily  have  to  be  content  with  a  corre- 
spondingly small  return.  If  the  available 
amount  of  capital  is  small  in  proportion  to  in- 
dividuals, the  individuals  will  bid  or  compete 
for  the  right  to  use  it  and  capital  will  make  a 
correspondingly  large  return.  Just  as  in  the 
business  with  the  quick  turnover  as  opposed  to 
the  one  with  the  slow  turnover,  the  greater  ag- 
gregate gain  always  comes  to  capital  when  it 

113 


The  Organization  of  Modern  Business 

keeps  itself  moving  quickly  with  a  small  mar- 
gin of  profit. 

We  do  not  change  the  function  or  the  rela- 
tion of  capital  when  we  transfer  its  ownership 
to  the  state  or  to  any  other  kind  of  a  common 
fund.  It  is  the  use,  not  the  ownership  or  iden- 
tity of  the  owners  of  capital,  that  is  important. 
When  we  destroy  capital  we  only  mutilate  our 
engines  of  production  and  invite  poverty.  If, 
for  instance,  a  hired  man  drives  a  flivver  for 
a  farmer,  and  if,  reflecting  upon  the  evils  of 
capitalism,  he  destroys  the  flivver,  to  some  ex- 
tent he  injures  the  farmer,  but  to  a  far  greater 
extent  he  injures  himself.  After  all,  he  must 
live  somehow,  and  it  is  conceivable  that  another 
means  of  earning  his  livelihood  may  prove  not 
only  less  congenial  but  less  profitable. 

Considering  the  mutuality  of  the  relations 
existing  between  tool  owners  and  tool  users, 
does  it  not  seem  ridiculous  for  the  former  to 
talk  about  " giving"  people  jobs,  or  to  pride 
themselves  on  being  good  employers  and 
thoughtful  of  their  workers  and  all  that  sort 
of  thing?  And  is  it  not  just  as  ridiculous  for 
the  tool  user  to  berate  and  belittle  the  property- 
owning  individual?  The  association  between 
employers  and  employees  is  economic  and  not 
charitable.  There  is  no  room  in  it  for  paternal- 

114 


Fallacies  of  Management 

ism  on  the  one  hand  or  obsequiousness  on  the 
other.  Suppose  employees,  en  masse,  not  wish- 
ing to  be  outdone  in  courtesy  by  benevolent 
employers,  should  pass  up  the  preferred  jobs 
saying:  "No,  kind  sirs,  we  cannot  accept  your 
favors,  we  must  not  take  of  your  bounty. " 
Where  would  the  benevolent  employers  be? 
They  would  be  exactly  where  many  employers 
found  themselves  during  the  man-short  war 
years,  that  is,  out  in  the  highways  and  by-ways 
imploring  people  to  work  for  them.  The  citi- 
zens of  a  country  which  has  a  Declaration  of 
Independence  for  its  charter  can  scarcely  be 
blamed  for  resenting  patronage  in  whatever 
guise  it  may  be  cloaked. 

Steadily  through  the  years  capital  has  been 
accumulating  until  at  times  there  is  more  capi- 
tal for  people  to  work  with  than  there  are  peo- 
ple who  want  to  do  the  work.  For  we  have  not 
as  yet  been  able  generally  to  establish  a  fair 
and  sliding  scale  of  distribution  or  to  keep 
clearly  before  the  minds  of  the  owners  of  the 
instruments  of  production  and  the  users  of 
those  instruments  the  relative  value  of  their 
contribution.  We  should  have  gotten  on  much 
further  in  the  allocation  of  shares  by  this  time, 
I  think,  had  not  the  war  come  in  with  its  infla- 
tion and  derangement  of  the  currency — disturb- 

115 


The  Organization  of  Modern  Business 

ing  the  only  medium  in  which  the  shares  can 
be  expressed. 

The  progression  is  well  described  by  Mr. 
Keynes  in  his  book,  "The  Economic  Conse- 
quences of  the  Peace." 

*  "  Lenin  is  said  to  have  declared  that  the  best  way 
to  destroy  the  Capitalist  System  was  to  debauch  the 
currency.    By  a  continuing  process  of  inflation,  gov- 
ernments can  confiscate,  secretly  and  unobserved,  an 
important  part  of  the  wealth  of  their  citizens.     By 
this  method  they  not  only  confiscate,  but  they  confis- 
cate arbitrarily;  and  while  the  process  impoverishes 
many,  it  actually  enriches  some.     The  sight  of  this 
arbitrary  rearrangement  of  riches  strikes  not  only  at 
security,  but  at  confidence  in  the  equity  of  the  exist- 
ing distribution  of  wealth.  .   .  . 

11  Lenin  was  certainly  right.  There  is  no  subtler, 
no  surer  means  of  overturning  the  existing  basis  of 
society  than  to  debauch  the  currency.  The  process 
engages  all  the  hidden  forces  of  economic  law  on  the 
side  of  destruction,  and  does  it  in  a  manner  which 
not  one  man  in  a  million  is  able  to  diagnose.  .  .  . 

"By  directing  hatred  against  this  class  (those  en- 
riched by  the  war),  therefore,  the  European  govern- 
ments are  carrying  a  step  further  the  fatal  process 
which  the  subtle  mind  of  Lenin  had  consciously  con- 

*  Reprinted  by  courtesy  of  Messrs.  Harcourt,  Brace  &  Com- 
pany,   publishers    of    "The    Economic    Consequences    of    the 
Peace,"  by  J.  M.  Keynes. 

116 


Fallacies  of  Management 

ceived.  The  profiteers  are  a  consequence  and  not  a 
cause  of  rising  prices.  By  combining  a  popular 
hatred  of  the  class  of  entrepreneurs  with  the  blow 
already  given  to  social  security  by  the  violent  and 
arbitrary  disturbance  of  contract  and  of  the  estab- 
lished equilibrium  of  wealth  which  is  the  inevitable 
result  of  inflation,  these  governments  are  fast  ren- 
dering impossible  a  continuance  of  the  social  and 
economic  order  of  the  nineteenth  century." 

From  time  immemorial  people  have  been 
talking  about  the  hardness  of  life,  about  the 
dreadful  struggle  for  existence.  They  used  to 
blame  nature  for  these  conditions.  Then  they 
got  around  to  blaming  capital,  or  rather  capi- 
talists, probably  because  nature  is  such  an  un- 
satisfactory thing  to  argue  or  quarrel  with. 
Take,  for  example,  the  recent  utterance  of 
Louis  F.  Post : 

* ' '  Though  wealth  is  abundant  and  wealth  produc- 
ing power  emulates  Omnipotence — degrading  poverty 
and  the  more  degrading  fear  of  poverty  are  distin- 
guishing characteristics  of  civilized  life.  Instead  of 
lifting  all  to  better  conditions  of  opportunity,  man's 
triumphs  over  the  forces  of  nature  enormously  enrich 
a  few  at  the  expense  of  the  many. 

1  'They  have  done  little  to  increase  the  comforts  of 

*From  "Ethics  of  Democracy,"  by  Louis  F.  Post,  copy- 
right 1916.  Used  by  permission  of  the  Publishers,  The  Bobbs- 
Merrill  Company. 

117 


The  Organization  of  Modern  Business 

the  toiling  masses,  even  absolutely,  but  much  to 
diminish  their  comforts  relatively ;  and  industrial  lib- 
erty they  have  almost  destroyed. 

* '  The  gulf  between  riches  and  poverty  has  not  been 
filled  in ;  it  has  been  widened  and  deepened  and  made 
more  of  a  hell  than  ever.  So  dreadful  is  the  poverty 
of  our  time  felt  to  be  that  it  has  inspired  us  all  with 
a  fear  of  it — a  fear  so  terrifying  that  many  more  good 
people  than  would  like  to  acknowledge  their  weak- 
ness look  upon  the  exchange  of  one's  immortal  soul 
for  a  fortune  as  very  like  a  bargain." 

Now,  the  real  trouble  is  not  that  "wealth 
is  abundant "  or  that  "wealth  producing  power 
emulates  Omnipotence";  the  real  trouble  is 
that  wealth  is  not  abundant  enough  and  there- 
fore wealth  production  is  not  great  enough  so 
that  all  may  have.  That  is  the  crux  of  the  dif- 
ficulty— which  we  obscure  by  a  welter  of  talk 
about  democracy.  There  is,  in  short,  a  world- 
wide disposition  to  substitute  phrase-making 
for  work,  with  the  result  that  production  has 
waned — making  the  very  conditions  complained 
of  still  more  acute.  People  imagine  they  quar- 
rel over  the  actions  of  capital;  as  a  matter  of 
fact,  they  quarrel  over  the  distribution  of  pro- 
duction, and  while  quarreling,  steadily  and  wil- 
fully diminish  the  amount  which  might  be  dis- 
tributed. With  all  of  our  talk  we  are  not  very 

118 


Fallacies  of  Management 

far  from  the  kind  of  intellect  that  once  sent  out 
the  children's  crusade.  We  simply  have  dif- 
ferent ways  of  expressing  our  innate  foolish- 
ness. 

The  idea  that  labor  " works  for"  capital  has 
resulted  in  a  growing  dislike  for  work  and  a 
growing  aversion  to  and  disrespect  toward  the 
leadership  which  makes  the  ownership  of  capi- 
tal possible.  Agitators  are  fond  of  talking 
about  inherited  wealth  and  its  evils,  and  prob- 
ably it  has  an  undue  mixture  of  evils,  but  in- 
herited wealth  is  not  a  very  important  constitu- 
ent of  the  ownership  of  capital. 

In  this  country  a  large  share  of  the  owner- 
ship of  the  means  of  production  is  usually 
gained  by  the  exhibition  of  large  measures  of 
leadership,  and  if  that  wealth  happens  to 
descend  and  the  owners  do  not  have  leadership 
or  do  not  have  sense  enough  to  drop  out  and 
put  some  one  in  who  does  have  leadership 
enough  to  manage  their  affairs,  their  wealth  is 
rapidly  dissipated.  Ownership  of  capital  is  not 
nearly  so  important  as  the  distribution  of  its 
production,  and  for  this  task  we  have  to  have 
leaders  or  there  would  be  no  products  to  dis- 
tribute. 

This  is  fortunately  not  an  academic  proposi- 
tion. It  has  been  demonstrated  conclusively  in 

119 


The  Organization  of  Modern  Business 

Russia.  There,  at  the  beginning,  democracy 
and  the  various  inalienable  rights  of  mankind 
were  interpreted  to  mean  the  right  to  exist 
without  work.  The  slogan  of  "  maximum 
wages,  minimum  hours  and  minimum  produc- 
tion "  is  not  unfamiliar  to  us.  The  Kussian 
workman  has  exercised  to  the  full  his  right  to 
live  upon  conversation  about  work  and  what 
this  has  led  to  is  shown  by  a  quotation  from 
Isvestia,  the  official  organ  of  the  Soviet  Gov- 
ernment, in  which  Larin,  the  People's  Com- 
missar for  Labor,  says: 

"We  have  got  to  abandon  resolutely  all  idea 
of  transferring  the  management  of  factories  to 
the  working  people  employed  in  them,  for  this 
measure  results  in  merely  substituting  a  new 
group  of  employers  for  a  single  employer. " 

In  a  recent  issue  of  the  Revue  Bleue,  Louis 
Narquet  gave  the  following  word  picture  of 
conditions  existing  in  Bolshevist  Russia: 

"To  say  the  least,  these  results  constitute  prac- 
tically a  demonstration  of  the  problem  which  we  are 
considering.  In  complete  control  of  the  administra- 
tion of  industry  and  labor,  the  Russian  Bolsheviki 
have  reduced  working  hours  and  increased  salaries 
with  the  result  that  prices  have  risen  to  unheard  of 
heights  and  production  has  fallen  to  an  unprece- 
dented minimum.  General  expenses  are  nearly  ten 

120 


Fallacies  of  Management 

times  what  they  were  before  and  the  price  of  manu- 
factures has  risen  in  proportion.  The  balance  is  idle- 
ness and  misery.  This  is  confirmed  by  the  Bolshevist 
paper,  Derevensky  Kommunist  (Village  Communist), 
in  number  sixty-three. 

"In  place  of  working  eight  hours,  resting  eight 
hours  and  devoting  eight  hours  to  pleasure  and  in- 
struction, the  workingmen  loaf  eight  hours,  sleep 
eight  hours,  and  play  cards  the  rest  of  the  time. 
Cards  and  loafing  are  the  principal  occupations." 

There  is  abundant  evidence  from  unpreju- 
diced and  disinterested  sources  that  the  Eus- 
sian  Communists  have  been  obliged  to  put 
aside  for  the  time  being  all  discussion  of  work 
as  an  academic  subject.  Trotsky  has  trans- 
formed part  of  the  military  army  into  an  army 
of  industry,  and  instead  of  eight  hours,  the  men 
are  working  fourteen  hours,  and  instead  of 
holding  a  pow-wow  every  few  minutes  as  to 
whether  or  not  they  will  obey  an  order,  they 
are  ruled  with  military  firmness,  infractions  of 
shop  discipline  being  punished  not  by  fines  or 
suspensions  but  by  being  shot  at  sunrise! 

This  regrettable  and  wholly  unnecessary 
state  of  affairs  in  which  starvation  and 
tyranny  have  become  side-partners  in  a  coun- 
try of  fabulous,  almost  unbelievable  natural 
wealth,  has  been  brought  about  solely  through 

121 


The  Organization  of  Modern  Business 

the  same  misconception  and  misrepresentation 
of  what  industry  is  and  what  leadership  does 
that  is  forever  being  urged  upon  our  own  peo- 
ple and  the  results  of  which  are  viewed  in  such 
panicky  fashion  by  those  who  are  supposed  to 
be  industrial  leaders,  but  who  are  possessed 
neither  of  capacity  for  leadership  nor  of  even 
ordinary  economic  horse  sense. 

A  parrot-like  repetition  of  phrases,  whether 
those  phrases  grow  out  of  "Workers  of  the 
world,  unite;  you  have  nothing  to  lose  but 
your  chains,"  or  whether  they  grow  out  of  a 
deification  of  the  Constitution  of  the  United 
States,  is  not  likely  to  get  us  very  far  toward 
our  goal  of  increased  production.  If  all  of  our 
"hot-air"  factories  were  to  shut  down  and  the 
same  energy  be  devoted  to  essential  industries, 
progress  would  be  fostered.  I  cannot  see  that 
there  is  much  to  choose  between  the  extreme 
radical  oil  the  one  hand  and  the  extreme  re- 
actionary on  the  other,  unless  one  happens  to 
be  interested  in  a  clinical  study  of  the  various 
types  of  mental  aberration  and  consequent  ir- 
responsibility. Since  we  manufacturers  and 
engineers  are  neither  professional  alienists  nor 
psychotherapeutists,  why  give  profound  consid- 
eration to  the  mental  process  of  men  who  are 
baying  at  the  moon?  Stern,  if  not  bitter,  expe- 

122 


Fallacies  of  Management 

rience  has  taught  us  that  nature  does  not  give 
a  living  without  the  return  of  a  working  equiva- 
lent, and  what  most  of  us  are  trying  to  do 
is  to  discover  how  best  to  arrange  the  work 
we  have  to  direct  so  that  the  participants  in  it, 
whether  laborers,  stockholders  or  consumers, 
shall  get  their  due. 

We  cannot  expect  to  reconstruct  or  recreate 
a  world  in  which  every  one  will  be  utterly  satis- 
fied. Such  a  world  could  not  be  peopled  by  hu- 
man beings,  for  the  natural  human  being  is 
rarely  satisfied,  and  it  is  really  quite  a  task, 
although  lightly  undertaken  by  many,  com- 
pletely to  change  the  mental  composition  of  the 
world  as  a  preliminary  to  putting  in  the  par- 
ticular system  of  reform  which  happens  to  be 
in  vogue  at  the  moment. 

Our  problem  is  simply  one  of  expediency,  and 
if  we  succeed  in  adjusting  matters  in  our  own 
particular  community  or  section  of  industry, 
we  can  safely  and  will  willingly  postpone  the 
recreation  of  the  human  being  and  the  settle- 
ment of  all  the  other  everlasting  conundrums 
that  tease  and  perplex  us.  Some  of  the  ways 
and  means  for  attaining  this  lesser  (and  to 
what  is  known  as  the  broad  social  conscious- 
ness, perhaps  inconsequent)  end,  I  shall  take 
up  in  the  next  chapter. 

123 


CHAPTER  VII 

CHOOSING   A   LABOR   POLICY 

FOLLOWING  the  thought  of  the  last  chapter, 
which  was  that  industry  prospers  only  in  the 
measure  in  which  it  serves,  and  that  it  serves 
only  in  proportion  to  its  devotion  to  this  single 
purpose  of  the  human  beings  engaged  therein, 
we  are  met  immediately  with  the  question: 
How  can  the  human  element  be  best  organized 
to  serve? 

I  am  not  using  ' '  serve "  in  any  uplifting 
sense.  It  is  a  word  that  often  holds  a  deal  of 
cantish  cheapness.  Many  worthy  souls  take  it 
as  connoting  a  standardized  humbleness  of 
spirit  and  a  ritualistic  courtesy — "the  cus- 
tomer is  always  right "  stuff.  Or  again  it  may 
be  as  expedition  in  the  delivery  of  packages, 
having  on  hand  a  complete  stock — especially  of 
goods  little  asked  for — grinning  at  a  customer 
when  he  comes  in,  and  immediately  reaching 
a  working  agreement  with  him  as  to  the  state 
of  the  weather,  thanking  him  when  he  buys, 
or  thanking  him  for  looking  at  the  goods  and 

124 


Choosing  a  Labor  Policy 

not  buying.  I  recall  a  seller  of  washing  ma- 
chines who  indignantly,  and  I  think  sincerely, 
denied  that  his  service  was  bad,  because,  as  he 
pointed  out,  "I  never  let  a  call  for  repairs  re- 
main unattended  for  more  than  48  hours." 
The  precise  complaint  made  to  him  was  that  his 
"service  department "  was  longer  on  speed 
than  on  intelligence.  It  had  hurried  a  work- 
man out  on  three  successive  days  to  repair 
what  should  have  been  repaired  in  one  short 
visit,  and  had  then  charged  the  customer  for 
all  of  the  visits!  To  that  fellow,  merely  get- 
ting a  man  out  to  a  job  was  "  service. " 

Service  is  not  trivial;  it  is  large  and  com- 
prehensive. It  comprises  the  deriving  of  the 
greatest  possible  benefit  to  society  out  of  an 
industrial  unit.  This  means  that  the  owners 
of  the  capital  invested,  the  managers  of  the 
capital,  the  workmen,  and  the  public  that  buys, 
must  all  be  the  better  off  for  its  existence. 
There  is  no  altruism  in  this  large  view,  for  un- 
less all  parties  concerned  are  benefited  by  the 
existence  of  the  unit  it  cannot  continue  to  exist. 
More  than  that,  its  prosperity  is  in  direct  pro- 
portion to  the  equality  in  which  these  benefits 
are  distributed. 

One  hears  a  good  deal  about  the  iron  heel  of 
capitalistic  (Jespotism  squeezing  blood  profit 

125 


The  Organization  of  Modern  Business 

out  of  the  poor,  down-trodden  worker.  But  I 
have  yet  to  discover  a  company  that  became 
really  prosperous  when  operated  on  the  lemon- 
squeezer  principle.  The  late  King  Leopold  was 
roundly  and  properly  denounced  for  the  Congo 
atrocities.  But  it  probably  would  have  in- 
jured his  feelings  much  more  deeply  if,  instead 
of  lambasting  him  as  a  soulless  old  gentleman, 
he  had  been  shown  by  an  engineering  report 
that  he  was  cheating  himself.  It  could  have 
been  shown  that  if  the  region  of  the  Congo 
were  to  be  operated  on  the  best  basis  he  could 
not  continue  the  atrocities  unless  he  had  them 
charged  to  his  personal  entertainment  account; 
for  his  way  of  treating  the  natives  really  kept 
him  out  of  an  adequate  money  return.  It  has 
since  been  demonstrated  that  the  Congo  is 
much  more  profitable  managed  on  a  clean  busi- 
ness basis  than  ever  it  was  in  the  old  atrocity 
days. 

The  victims  of  an  unjust  industrial  program 
are  sincerely  to  be  pitied.  But  also  you  must 
extend  some  measure  of  sympathy  to  the 
originator  of  the  program,  for  the  poor  fellow 
is  swindling  himself. 

The  organization  of  the  human  element  is 
possibly  the  largest  part  of  the  whole  organiza- 
tion of  business.  But  it  is  only  a  part,  and  it 

126 


Choosing  a  Labor  Policy 

is  not  the  whole ;  also,  it  is  something  different 
from  what  we  call  the  labor  problem,  for  it 
comprehends  both  those  who  work  with  their 
hands  and  those  who  work  with  their  heads— 
those  who  fabricate  and  those  who  direct — the 
worker,  the  technician,  and  the  executive. 

The  financial  structure  of  modern  business 
tends  more  and  more  to  the  separation  of  own- 
ership and  management,  so  that  often  the  high 
executive  management  is  really  nearer  to  the 
workingman  than  it  is  to  the  capitalists.  That  I 
shall  take  up  in  the  next  chapter  in  a  discus- 
sion of  the  organization  of  the  executive,  but 
here  we  shall  treat  only  of  the  wage  earners, 
with  the  caution,  however,  that  satisfactory 
labor  organization  is  predicated  upon  a  sat- 
isfactory executive  organization.  A  large 
amount  of  what  is  called  labor  trouble  gets 
back  to  a  too  strongly  centralized  executive 
control  or  to  the  fact  that  in  the  executive  or- 
ganization are  men  who  would  be  of  greater 
benefit  to  society  if  their  talents  were  being 
otherwise  disposed  of. 

Let  us  narrow  our  question,  then,  to  "What 
is  a  good  labor  policy?" 

This  can  be  answered  in  a  single  sentence. 
A  good  labor  policy  is  one  that  works. 

I  fear  that  this  answer  would  not  be  consid- 

127 


The  Organization  of  Modern  Business 

ered  as  wholly  conclusive  by  those  who  are 
committed  to  the  "laboratory"  method.  In 
that  school  any  labor  policy  to  be  designated 
as  a  good  one  must  contain  certain  elements 
which  the  investigators  have,  by  their  experi- 
ments and  analyses,  isolated.  Whether  or  not 
the  policy  works  in  practise  is  of  small  matter. 
My  experience  teaches  me  that  the  sound,  com- 
prehensive and  universal  labor  policy  that  is 
automatic  in  action  and  always  successful  is 
sitting  beside  the  pot  of  gold  at  the  end  of  the 
rainbow.  The  human  being  is  best  managed  by 
a  policy  that  has  no  more  aristocratic  lineage 
than  far-seeing  expedience.  It  is  the  habit  of 
to-day  to  speak  very  lightly  of  the  laissez  faire 
doctrines  of  the  classical  economists — to  claim 
that  the  law  of  supply  and  demand  belongs  to 
the  hoopskirt  period,  and  to  affect  a  certain 
superiority  over  those  who  have  gone  before. 
And  yet  I  am  not  convinced  that  those  modern 
doctrines  which  are  called  "radical"  or  "pro- 
gressive" at  all  accelerate  the  progress  of  the 
world.  For  instance,  the  trades  union,  although 
it  has  performed  a  valuable  service  in  curbing 
unscrupulous  and  therefore  short-sighted  em- 
ployers and  has  thus  benefited  business — even 
if  unwittingly— has  not  of  itself  permanently 
advanced  wages  or  bettered  working  condi- 

128 


Choosing  a  Labor  Policy 

tions.  The  unions  have  merely,  from  time  to 
time,  registered  the  price  that  the  increasing 
volume  of  capital  must  pay  for  the  services  of 
man.  Laws  may  compel  employers  to  provide 
air  and  light  for  their  employees ;  but  common 
sense  teaches  that  it  is  very  wasteful  to  pay 
wages  to  a  man  and  then  expect  him  to  give  a 
return  for  those  wages  when  huddled  into  a 
dark,  air-tight  vault.  The  clothing  trade  in 
New  York  gives  convincing  evidence  of  these 
truisms.  In  the  ten  years  before  the  war  great 
hordes  of  immigrants  from  Russia  and  south- 
ern Europe  surged  into  New  York.  Most  of 
them  knew  only  vaguely  why  they  had  come, 
and  few  had  the  money  to  go  farther.  In  a 
general  disillusionment,  the  only  employment 
that  offered  was  to  work  with  the  needle,  and 
at  whatever  price  and  under  whatever  condi- 
tions the  employer  chose  to  impose.  The  em- 
ployer was  the  master  because  he  held  in  his 
hand  the  means  of  existence.  It  was  work  or 
starve.  The  newcomers  were  glad  to  be  per- 
mitted to  exist.  The  employers  saw  to  it  that 
they  did  not  have  a  chance  to  be  glad  over  any- 
thing more  than  mere  existence.  The  wages 
were  pitiful.  The  slaves  could  not  strike.  They 
never  thought  of  striking.  But,  when  the  war 
shut  off  immigration — when  the  stream  dried 

129 


The  Organization  of  Modern  Business 

up — then  other  trades  began  to  call  for  men, 
and  no  longer  did  the  sweat-shop  owner  hold 
the  power  of  life  and  death.  He  could  not  pick 
and  choose  his  people — he  now  had  to  bid  for 
them.  He  had  to  bid  with  both  wages  and  work 
conditions  and  soon  to  treat  with  unions  and 
strikes.  Neither  the  employees  nor  the  em- 
ployers brought  about  this  change  in  con- 
ditions. Economic  forces  created  the  new 
order. 

We  find  economic  and  not  human  factors  con- 
trolling in  every  line  of  industry.  We  may 
compliment  ourselves  as  Americans  on  our  skill 
in  the  devising  of  labor-saving  machinery.  But, 
if  we  investigate,  we  discover  that  our  ma- 
chinery devising  is  only  a  result.  We  had  to 
have  machinery  because  we  did  not  have  labor. 
You  will  find  that  in  any  line  of  industry  the 
development  in  automatic  machinery  is  in  pro- 
portion to  the  scarcity  of  labor  in  that  industry. 

To  go  back  to  the  needle  trades.  Not  many 
years  ago  it  was  not  even  necessary  to  provide 
the  worker  with  a  sewing  machine.  To-day,  the 
companies  that  are  making  money  have  rather 
a  high  machine  development. 

During  most  of  the  years  of  our  history,  and 
especially  during  the  boom  times  following  the 
close  of  the  Civil  War,  our  manufacturers  had 

130 


Choosing  a  Labor  Policy 

to  offer  wages  and  inducements  which  provided 
a  better  living  to  a  man  than  he  could  make  on 
his  own  farm — for  at  that  time  practically  any 
one  who  wanted  a  farm  might  have  one.  There- 
fore they  had  to  offer  high  wages,  and,  in  ad- 
dition to  that,  had  to  make  these  high  wages 
effective  by  the  use  of  machinery.  A  labor 
status  is  not  brought  about  by  the  meeting  of 
the  minds  of  the  employer  on  the  one  side  and 
the  employees  on  the  other.  Neither  of  them 
have  had  much  more  discretion  than  the  pup- 
pets in  a  Punch  and  Judy  show. 

The  economic  forces  have  controlled.  They 
will  continue  to  control.  This  does  not  at  all 
mean  that  we  should  stand  still  and  watch  the 
show  go  by.  We  can  help  to  mold,  not  the 
world-wide  conditions,  but  our  own  particular 
conditions  .to  at  least  some  degree,  and  we  can 
thus  understand  how  to  make  the  more  out  of 
our  own  particular  situation.  With  many  ele- 
ments we  are  bound  to  be  unacquainted — na- 
ture acts  in  a  mysterious  way. 

One  thing,  however,  we  have  learned.  It  is 
this :  While  the  restrictions  of  production  at  an 
appropriate  moment  may  bring  advantage  to 
either  the  employer  who  shuts  down  to  sell  off 
his  stock  at  a  high  price,  or  to  the  employee 
who  makes  a  group  demand  for  increased 

131 


The  Organization  of  Modern  Business 

wages  at  a  moment  when  large  production 
offers  a  big  profit  to  the  employer,  yet  in  the 
end  neither  side  really  benefits.  The  perma- 
nent benefits  come  from  an  always  larger  and 
larger  production  at  a  decreasing  cost — that  is, 
with  a  minimum  of  waste.  It  is  the  part  of  in- 
dustrial engineering  to  teach  this  latter  truth 
through  putting  theory  into  practise. 

The  well-being  of  any  particular  industrial 
institution  depends  upon  how  well  it  produces 
and  thereafter  sells.  Therefore  any  labor 
policy  which  attempts  to  consider  labor  as 
apart  from  production,  as  a  commodity,  is 
bound  to  fail.  One  of  the  troubles  with  the 
average  trades  union  is  that,  while  declaiming 
that  labor  is  not  a  commodity,  it  insists  that 
the  service  of  men  should  be  bought  in  bulk 
and  at  a  market  price  fixed  by  the  union.  That 
is,  the  union  really  insists  that  labor  be  con- 
sidered as  a  commodity  and  have  its  price 
fixed. 

We  know  that  human  beings  do  not  always 
act  in  the  same  way  under  the  same  circum- 
stances. That  is  the  trouble  with  every  variety 
of  standard,  nation-wide  labor  scheme.  The 
man  in  the  first-floor  apartment  may  be  yelping 
with  joy  because  he  has  corned  beef  and  cab- 
bage for  dinner,  while  the  man  in  the  second- 

132 


Choosing  a  Labor  Policy 

floor  apartment  may  be  trying  to  murder  his 
wife  because  she  has  provided  corned  beef  and 
cabbage  for  dinner.  An  elaborate  mental 
analysis  might  disclose  why  the  one  yelps  and 
the  other  murders  in  the  presence  of  corned 
beef  and  cabbage.  Now  we  might  well  have  a 
whole  colony  of  anti-corned-beef-and-cabbages, 
and  I,  because  I  like  this  food  combination, 
might  insist  upon  feeding  it  to  the  colony  and 
pay  no  attention  whatsoever  to  the  resulting 
riots.  And  so  it  is  with  a  labor  policy.  We 
can  be  perfectly  certain  that  a  completely 
worked-out  policy  cannot  be  given  country-wide 
application ;  and  it  would  not  be  a  recommenda- 
tion of  such  a  policy  to  prove  that  it  succeeded 
more  often  than  it  failed.  It  would  only  prove 
that  a  perfect  36  is  more  comfortable  in  a  38 
coat  than  in  a  34 — it  would  not  prove  that  the 
40  's  and  44  's  were  comfortable  in  the  stand- 
ard 38. 

There  is  no  doubt  that  a  national  labor  policy 
of  universal  application  would  be  extraordina- 
rily convenient.  The  nation,  as  well  as  the  par- 
ticipants, suffer  in  industrial  warfare,  and 
therefore  it  is  perfectly  natural  that  the  out- 
sider should  say:  "Here,  stop  this  racket;  get 
together  and  do  something  in  a  quiet  way."  It 
is  further  natural  that  demand  should  be  made 

133 


The  Organization  of  Modern  Business 

for  some  law  or  policy  that  would  operate  to 
prevent  similar  disturbances  in  the  future. 

To  such  an  extent  have  socialistic  doctrines 
influenced  us  that  many  members  of  the  com- 
munity, who  would  be  quick  to  disavow  even 
sympathy  with  socialism,  are  quite  ready  to 
agree  that  there  can  be  a  universal  panacea. 
The  socialists  and  their  non-conformist  breth- 
ren— the  communists,  the  syndicalists  and  the 
whatnots — all  have  their  panaceas  in  a  re- 
organized society.  And  therefore  we  non- 
socialists,  not  to  be  outdone  in  constructive 
thought,  must  needs  have  our  universal  ar- 
rangements for  the  ending  of  labor  wars.  Be- 
ing a  little  uncertain  of  our  ability  to  get  out 
a  complete  national  law  to  regulate  labor,  we 
have,  of  late,  been  taking  refuge  in  the  enuncia- 
tion of  labor  policies,  for,  as  it  is  well  and  ex- 
tenuatingly  said,  to  state  the  problem  is  to  go 
forward  to  solve  it.  And  so,  whenever  two  or 
three  are  gathered  together  in  the  name  of  this 
or  that  association,  the  day  is  considered  as 
well  spent  and  the  minds  are  free  for  golf  and 
dinner  if  a  neat  set  of  resolutions  are  adopted 
declaring  the  "principles"  that  should  govern 
the  relations  between  capital  and  labor.  It  is 
indeed  a  barren  meeting  that  cannot  bear  a 
well  "whereased"  set  of  principles. 

134 


Choosing  a  Labor  Policy 

It  will  indeed  be  an  obtuse  mind  that  would 
fail  to  grant  that  stating  a  problem  is  the  first 
step  toward  its  solution.  We  learned  in  school 
that  first  of  all  we  had  to  state  our  problem; 
but  several  of  us  learned  that  a  long,  hard  road 
lay  between  that  statement  and  the  flourish 
of  the  "Q.ED."  And  sometimes  also,  the 
teacher,  observing  our  mental  anguish,  and  in- 
vestigating its  cause,  would  remark  that  per- 
haps our  troubles  might  be  lightened  if  we  re- 
vised our  statement  of  the  problem  to  make  it 
conform  to  the  task  that  had  been  given  to  us. 
And  therefore  I  shy  a  little  at  the  easy  enun- 
ciation of  our  labor  difficulties,  recalling  some- 
what diffidently  that  my  most  fluent  answers  to 
examination  questions  were  commonly  wrong. 

Take  the  first  Industrial  Conference  called 
by  ex-President  Wilson.  It  broke  up  in  a  row 
because  the  principle  of  collective  bargaining 
could  not  be  agreed  upon.  The  members  could 
not  agree  because  they  refused  to  find  a  defini- 
tion of  the  term.  The  unions  insisted  that  it 
meant  fixing  wages  by  agreement  with  the  union. 
This  is  a  purely  technical  definition  without 
foundation  in  fact.  The  employers,  on  the  other 
hand,  refused  to  grant  that  the  principles  had 
any  union  connotation,  although  all  of  them 
knew  perfectly  well  that  in  effect  they  had  al- 

135 


The  Organization  of  Modern  Business 

ways  bargained  collectively,  because  if  the  wage 
they  offered  from  time  to  time  was  not  attrac- 
tive they  could  not  get  workers.  So  that  confer- 
ence broke  up  because  both  sides  refused  to  be 
frank. 

The  second  Industrial  Conference  was  or- 
ganized so  that  it  could  not  break  up,  and  it 
rendered  an  interesting  report  which  contains 
some  general  observations  that  are  not  without 
value.  Almost  every  trade  association  and 
chamber  of  commerce  have  passed  resolutions 
which  say  in  effect  that  the  world  is  round  and 
water  is  wet. 

There  are  others  who  agitate  themselves  over 
the  plan  of  the  Kansas  Industrial  Courts  not- 
withstanding the  fact  that  Kansas  is  not  an 
industrial  state  and  has  had  to  do  with  one  par- 
ticular condition  and  matters  cognate.  There 
are  still  others  who  talk  about  the  Australian 
system  of  compulsory  arbitration,  although 
that  system  failed  the  moment  that  the  mem- 
bers of  the  boards  stopped  playing  at  Santa 
Claus. 

No  very  elaborate  organization  is  required  to 
grant  raises  in  wages — a  first-class  rubber 
stamp,  an  ink  pad,  and  a  small  boy  could  per- 
form all  of  the  functions  of  the  average  indus- 
trial court. 

136 


Choosing  a  Labor  Policy 

Do  we  want  a  definitely  stated  national  labor 
policy?  Has  our  experience  with  the  national 
control  of  anything  been  such  that  we  desire  to 
extend  that  control?  Can  we  still  seriously 
subscribe  that  wisdom  is  a  gift  of  the  law 
rather  than  of  God? 

We  had  some  experience  with  labor  boards 
during  the  war.    We  had  many  ingenious  gen- 
tlemen   traveling    about   the    country   raising 
wages.    We  had  the  War  Labor  Policies  Board 
clothed  in  college  wisdom  and  talking  nonsense. 
Among  the   several  very  remarkable  policies 
which  that  board  enunciated  in  fair  language 
was  the  differential  in  favor  of  shipyards,  with 
the  further  provision  that  every  shipyard  in 
the  country  should  pay  the  same  rate  regard- 
less of  the  skill  of  the  management  or  the  local 
cost  of  living.     This  of  course  resulted  in  ex- 
traordinary   wages    being    received    in    those 
yards    where    the    management    had    applied 
science  to  the  working  out  of  adequate  piece 
rates  and  the  planning  of  work.    At  Newport 
News,  with  the  work  well  planned  and  every 
convenience  at  hand,   a  half-skilled  workman 
on  certain  jobs  would  run  to  $400  a  week  on 
the  national  scale,  while  the  same  workman  in 
one  of  the  mushroom  shipyards  where  nothing 
was  planned  would  hardly  gain  a  living  wage. 

137 


The  Organization  of  Modern  Business 

And  as  a  by-product  of  this  ruling  we  had  the 
strike  of  the  machinists  on  the  railways.  These 
men  could  not  understand  why,  with  Uncle 
Sam  holding  the  bag,  they  should  get  one  rate 
in  a  shipyard  and  another  rate  in  a  railway 
shop  for  doing  exactly  the  same  work!  And 
no  one  could  help  them  to  such  an  understand- 
ing. A  uniform  policy  may  operate  with  fair 
success  in  a  small,  homogeneous  country.  But 
even  England  cannot  well  manage  under  the 
somewhat  broad  industry  policies  of  the  Whit- 
ley  Councils — they  are  not  a  success.  The  So- 
cialists always  want  universal  rules,  but  the 
principles  of  Marx,  that  are  in  the  mouth  of 
every  radical,  are  in  process  of  being  inter- 
preted in  Russia,  so  that  now  about  the  only 
thing  the  old  gentleman  could  claim  credit  for, 
if  he  were  alive,  is  the  general  title. 

It  is  results  that  we  are  after,  not  principles. 
Principles  are  valuable  in  guiding  thought,  but 
they  are  dangerous  when  considered  as  posi- 
tive instructions.  Take  one  of  the  questions  on 
which  disagreement  is  most  violent — that  of  the 
relative  efficiency  of  the  closed  as  against  the 
open  shop.  Carefully  selecting  my  cases,  I  can 
prove  either  that  the  open  shop  is  infinitely  to 
be  preferred;  or  I  can  turn  around  and  prove 
the  opposite.  "Whatever  conclusion  I  present  to 

138 


Choosing  a  Labor  Policy 

you  will  be  worthless  to  an  individual  corpora- 
tion manager  seeking  information.  Because  I 
prove  that  the  open  shop  is  better  or  because 
I  prove  that  the  closed  shop  is  better  will  not 
in  the  least  help  any  one  who  is  trying  to  de- 
cide on  his  own  policy.  Only  the  conditions  of 
work  in  the  particular  shop  under  investiga- 
tion, and  not  deductions  from  other  experi- 
ences, will  determine  the  right  policy. 

The  American  Boiling  Mill  Company  at  Mid- 
diet  own,  Ohio,  has  attained  a  very  high  general 
efficiency.  One  of  their  large  departments  is 
run  on  the  union,  closed-shop  basis.  All  the 
other  departments  are  on  the  open-shop  plan. 
There  is  no  distinction  in  efficiency  between  the 
union  shops  and  the  non-union  shops.  They 
have  never  had  a  strike.  During  the  steel  strike 
their  union  men  did  not  go  out. 

On  the  other  hand,  the  unions  are  so  entirely 
well  satisfied  with  the  conditions  in  the  shops 
of  the  Endicott-Johnson  Company  at  Endicott 
and  Johnson  City,  New  York,  that  they  frankly 
say  that  it  would  not  be  worth  while  to  attempt 
organization — that  nothing  could  be  gained  by 
organization,  and  hence  we  have  the  surprising 
spectacle  of  the  executives  of  this  large  com- 
pany being  on  the  best  of  terms  with  the  union 
officers  without  the  slightest  effort  on  the  part 

139 


The  Organization  of  Modern  Business 

of  the  unionists  to  effect,  or  even  to  ask  for, 
organization. 

In  other  parts  of  the  country  we  find  closed 
union  shops  operating  at  an  absolute  minimum 
of  efficiency  and  on  the  most  approved  lines  of 
English  unionism — which  means  that  a  day's 
work  is  not  to  be  regarded  as  an  essay  in  pro- 
duction but  rather  as  an  endurance  test  to  see 
whether  it  can  be  managed  without  the  viola- 
tion of  some  of  the  voluminous  union  statutes. 
In  other  places  we  find  open  shops  running  on 
a  minimum  of  efficiency. 

I  am  inclined  to  view  the  whole  question  of 
unionism  as  one  dependent  wholly  upon  the  cir- 
cumstances. Any  individual  case  can  be  decided 
by  putting  down  what  the  business  wants  to  be 
and  then  endeavoring  to  discover  whether  its 
legitimate  objects,  which  include  the  good  of 
all  concerned,  can  best  be  achieved  by  an  agree- 
ment with  a  union,  by  an  agreement  with  the 
employees,  or  by  proceeding  under  no  agree- 
ment whatsoever. 

It  may  be  said  that  this  choice  is  not  always 
present.  Just  as  unscrupulous  employers  have, 
not  knowing  what  business  is,  tried  their  short 
seasons  of  profiteering  against  their  employees 
and  the  public,  so  also  has  the  same  type  of 

140 


Choosing  a  Labor  Policy 

man  as  a  union  leader  instead  of  as  an  em- 
ployer embarked  on  his  season  of  profiteering. 
When  an  unscrupulous  employer  meets  an  un- 
scrupulous union  leader,  they  are  bound  to  take 
one  of  two  courses — to  engage  in  something  akin 
to  a  gang  row  or  to  become  partners  in  crime. 
Or,  to  put  it  another  way,  to  become  partners  in 
the  destruction  of  the  business  unit  by  making 
it  of  the  least  possible  service  to  the  public. 
The  last  method  is  a  favorite  one%  for,  neither 
side  having  a  glimmer  of  the  economics  of  busi- 
ness, they  can  easily  agree  to  go  a-looting  to- 
gether. And  while  they  think  they  are  looting 
the  public,  really  they  are  looting  themselves. 

We  might  draw  many  excellent  examples  of 
this  sort  of  thing  from  the  woolen  and  cotton 
trades.  The  sweet  waters  just  above  the  bank- 
ruptcy falls  are  dotted  with  the  boats  of  these 
jolly  souls.  Some  of  them  glide  quietly  on  to 
destruction,  while  the  more  exuberant  spirits 
even  insist  upon  rocking  the  boat  as  they  go. 

The  real  question  to  decide  in  any  one  case 
is :  How  may  we  best  attain  our  objective  ?  And 
this  is  a  matter  to  be  decided  with  all  the 
cards  on  the  table.  To  attempt  an  agreement 
under  any  other  circumstances  is  only  slightly 
to  postpone  the  absolute  inevitable  conse- 

141 


The  Organization  of  Modern  Business 

quences.  It  was  very  sound  advice  that  Col- 
lier's Weekly  gave  some  time  ago  when  it  edi- 
torially said : 

11  Every  strike  is  settled  around  a  table.  Why 
not  make  the  settlement  before  the  strike  be- 
gins ?"  And  then  the  editorial  continues:  "On 
that  text  Collier's  has  proposed  that  America 
go  forward  to  lead  the  world  in  the  attainment 
of  industrial  peace.  We  have  said:  *  Let's  have 
the  United  States  create  a  Board  of  Industrial 
Adjustment  to  be  appointed  by  the  President. 
Then  let's  have  the  board  divide  the  country 
up  into  zones,  somewhat  like  the  Federal  Re- 
serve districts,  and  appoint  chairmen  for  each 
zone  or  region.  Then  let's  have  that  chairman 
ready  to  appoint  arbitrators  for  disputes  when 
both  parties  consent  to  arbitration  and  to  abide 
by  the  result.'  Where  the  parties  fail  to  con- 
sent, then  let's  have  the  chairman  and  an  in- 
vestigating board  given  legal  power  to  summon 
and  examine  witnesses  under  oath,  to  find  out 
what  is  the  matter  and  tell  the  public!  In 
other  words,  let's  crystallize  public  opinion 
with  facts." 

A  remedy  of  this  kind  is  a  valuable  last  re- 
sort. It,  in  effect,  says  to  any  group  of  em- 
ployers and  employees:  "We  know  that  you 
could  arrange  your  difficulties  were  it  not  that 

142 


Choosing  a  Labor  Policy 

one  or  both  of  you  want  to  cheat.  Therefore 
we  are  going  to  investigate  you  as  we  would 
a  pesthole;  and  after  that  investigation  has 
been  made  public,  you  will  either  fit  yourselves 
to  live  in  a  decent  community  or  public  opinion 
will  see  to  it  that  you  get  out  of  the  com- 
munity. ' ' 

We  have  such  pestholes  in  industry — the  coal 
trade  is  one  of  them.  The  man  whose  business 
requires  such  public  investigation  is  not  to  be 
ranked  as  a  captain  of  industry  or  a  leader  of 
labor  but  as  a  social  criminal  who  is  out  to  get 
while  the  getting  is  good.  He  does  not  as  a 
rule  get  anything  because  nature  in  her  quiet 
way  sees  to  it  that  crime  has  its  fitting  reward. 

We  find  most  labor  troubles  in  unscientific 
industry — because  then  each  season  of  work 
presents  itself  both  to  the  employer  and  to  the 
employee  as  a  grabbing  opportunity.  For  my 
own  part,  I  find  that  the  largest  efficiency  may 
often  be  reached  with  a  union  organization 
when,  as  a  preliminary  to  the  arrangement,  the 
old-fashioned  union  notion  of  a  flat  wage  re- 
gardless of  individual  performance  is  aban- 
doned. In  the  ordinary  union  negotiation  the 
sole  dispute  concerns  the  amount  of  the  flat 
wage.  A  uniform  wage  without  a  correspond- 
ing uniform  production  is  a  negation  of  indus- 

143 


The  Organization  of  Modern  Business 

try,  and  it  is  now  so  recognized.  Samuel 
Gompers,  in  an  interview  in  the  System  Magctr- 
zine  of  April,  1920,  acknowledged  this  point 
when  he  said: 

'  '  The  union  wage  is  a  minimum  wage,  and  it 
is  arrived  at  as  being  in  the  nature  of  a  safe- 
guard against  paying  a  man  of  a  certain  skill 
less  than  a  certain  amount  for  his  day.  But 
however  erroneous  may  be  some  of  the  opinions 
on  the  subject,  wages  are  paid  out  of  the  pro- 
duction and  out  of  nothing  else.  Therefore, 
those  who,  in  the  name  of  unions,  oppose  the 
introduction  of  better  methods  of  work  are 
catering  to  ignorance  and  not  to  union  princi- 
ples. .  .  .  Having  fixed  upon  the  minimum 
amount  of  work,  we  are  to  take  into  account 
that  all  men  are  not  equal,  and  there  is  no 
suspicion  in  the  union  doctrine  that  all  men 
are  equal  in  ability,  and  I  should  therefore  ar- 
range to  pay  my  people  in  proportion  to  the 
amount  of  work  they  did  above  the  standard — 
not  at  all  in  the  way  of  a  bonus,  not  as  a  gift, 
and  not  charitably,  but  with  a  mutual  recogni- 
tion of  the  fact  that,  if  prices  are  calculated 
upon  the  man  doing  10  articles  a  day,  if  he  then 
does  20  articles  a  day  the  employer  can  well 
afford  to  pay  the  worker  who  produces  100% 
more,  100%  more  wages,  because  the  overhead 

144 


Choosing  a  Labor  Policy 

expense  remains  just  the  same.  This  is  a  prin- 
ciple recognized  by  most  industrial  engineers 
and  it  is  perfectly  fair  to  all  parties/' 

Whenever  I  make  this  remark,  some  one  is 
certain  to  say: 

"That  is  all  well  enough,  but  our  people  in- 
sist on  a  flat  wage — a  uniform  rate.  They 
won't  listen  to  anything  else." 

That  has  not  been  my  experience.  Of  course 
in  any  case  where  a  governmental  agency  has 
interposed  one  of  its  sinister  rulings,  there  is 
nothing  to  be  done.  One  must  then  muddle 
through  as  best  he  may  and  pray  that  the  fool- 
catcher  hurry  on  his  rounds.  But  where  un- 
restricted, and  one  side,  whether  that  side  be 
the  employer's  or  the  unionist's,  desires  to  get 
the  most  out  of  business,  true  business  prin- 
ciples can  be  put  into  effect.  Take  the  gar- 
ment trade  in  Cleveland,  where  is  in  progress 
what  I  consider  in  many  ways  the  most  impor- 
tant of  all  our  industrial  experiments.  It  is 
founded  on  the  basic  principles  of  industry. 
The  Cleveland  situation  was  for  many  years 
a  struggle  between  the  union  leaders  on  the  one 
hand  and  the  employers  on  the  other.  They 
had  one  very  disastrous  strike  which  lasted 
through  the  better  part  of  the  year  and  for  the 
time  being  broke  the  union.  Since  then  the 

145 


The  Organization  of  Modern  Business 

open  shop  has  obtained,  and  in  many  of  the 
shops  a  trades-union  member  was  not  allowed 
to  work.  Several  of  the  largest  shops  were 
far-seeing,  and  they  operated  on  scientific  prin- 
ciples, with  fairly  set  piece  rates  and  commit- 
tee management.  During  the  war  the  union 
influence  grew  and  there  was  a  strong  possi- 
bility that  at  some  future  date  another  dead- 
lock might  be  reached. 

The  leader  of  the  trades  unionists  in  the 
Cleveland  garment  trade  is  one  Meyer  Perl- 
stein,  who  is  a  student  and  who  has  obtained 
a  rather  broad  view  of  business.  Without  set- 
ting up  any  false  modesty,  I  am  glad  to  say 
that  my  writings  on  this  subject  were  not  with- 
out influence  upon  him.  I  write  in  order  to 
help  people  to  a  better  view  of  business,  and  I 
cannot  feign  a  modesty  when  the  words  do 
what  they  were  sent  out  to  do. 

The  unions  and  the  employers  arrived  at  an 
agreement  of  which  the  following  is  a  part : 

"In  view  of  their  primary  responsibility  to 
the  consuming  public,  workers  and  owners  are 
jointly  and  separately  responsible  for  the  cost 
and  quality  of  the  service  rendered,  it  is  agreed 
that  cooperation  and  mutual  helpfulness  are 
the  basis  of  right  and  progressive  industrial 
relations,  and  that  intimidation  and  coercion 

146 


Choosing  a  Labor  Policy 

have  no  proper  place  in  American  industry.  To 
provide  a  means  whereby  the  parties  may  co- 
operate, both  to  preserve  peace  in  the  industry 
and  to  further  their  mutual  interests  in  the 
common  enterprise  this  agreement  is  entered 
into. . 

"On  or  about  October  first  of  each  year,  the 
Referees  shall  take  up  the  matter  of  wage- 
scales,  and  on  or  about  November  first  shall 
make  such  changes  in  the  then-existing  scale  as 
shall,  in  their  judgment,  seem  advisable.  The 
wage-scale  thus  promulgated  by  them  shall  be 
effective  at  a  time  to  be  fixed  by  the  Referees, 
which  shall  not  be  prior  to  December  first  of  that 
year,  and  shall  be  the  scale  in  force  for  the  year 
next  ensuing,  except  that  four  months  there- 
after the  subject  may  be  reopened  for  the  pur- 
pose of  making  adjustments  in  conformity  with 
changes  in  the  cost  of  living,  which  adjustment 
ishall  be  made  on  or  about  April  first,  and  be- 
come effective  at  a  date  to  be  fixed  by  the 
Referees,  which  date  shall  not  be  prior  to  May 
first ;  provided,  however,  that  the  scale  adopted 
for  the  year  1920  shall  be  effective  as  of  Janu- 
ary first  of  that  year,  and  that  there  shall  be 
no  changes  in  that  scale  before  December  first, 
1920. 

"The  wage-scale  shall  be  determined  after 

147 


The  Organization  of  Modern  Business 

thorough  investigation  of  all  ascer tamable 
facts,  with  due  regard  to  the  public  interest, 
fair  and  equitable  wages  conforming  to  Ameri- 
can standards,  and  to  the  progress  and  pros- 
perity of  the  Industry.  A  united  effort  shall 
be  made  to  promote  all  interests  by  increasing 
continuity  of  employment. 

"  Disputes  between  an  employer  and  an  em- 
ployee in  an  individual  shop,  affecting  a  mem- 
ber of  the  Union,  shall  first  be  taken  up  between 
the  employer  or  his  representative  and  the 
worker  concerned  or  his  representative,  who 
must  be  an  employee  of  such  shop,  for  the  pur- 
pose of  adjusting  the  differences  between  them. 
In  case  of  failure  to  make  satisfactory  adjust- 
ment, the  matter  .shall  then  be  taken  up  by  the 
Manager  of  the  Union  and  the  Manager  of  the 
Manufacturers '  Association. 

"Disputes  of  a  general  nature  concerning 
such  matters  as  hours  of  work,  general  sani- 
tary standards,  general  wage-scales,  and  classi- 
fications in  connection  therewith,  and  so  forth, 
shall  be  taken  up  directly  by  the  Manager  of 
the  Union  and  the  Manager  of  the  Manufac- 
turers' Association. 

"If  they  fail  in  either  case  to  make  a  satis- 
factory adjustment,  the  dispute  shall  then  be 
arbitrated  by  the  representative  of  the  Kef- 

148 


Choosing  a  Labor  Policy 

erees  appointed  for  that  purpose  and  vested 
with  the  full  power  of  the  Board  of  Referees, 
subject  only  to  a  right  of  appeal  to  the  Board 
from  his  decision  on  matters  relating  to  prin- 
ciple or  policy.  This  representative  shall  re- 
side in  Cleveland,  and  may  be  called  upon  at 
any  time  for  the  investigation  or  hearing  of 
cases  properly  brought  before  him.  No  case 
shall  be  heard  by  him,  or  by  the  Board,  which 
has  not  first  been  taken  up  in  the  successive 
steps  set  forth  above.  The  decision  of  the  rep- 
resentative is  final  unless  and  until  overruled 
or  modified  by  the  Board  of  Referees,  except 
where  a  member  of  the  Board,  upon  cause 
shown,  shall  deem  it  advisable  to  suspend  exe- 
cution of  the  decision  of  the  representative, 
pending  appeal.  .  .  . 

*  '  The  expenses  of  the  Referees  and  their  rep- 
resentative in  administering  this  agreement 
shall  be  borne  equally  by  the  Union  and  the 
Manufacturers'  Association  by  making  such 
deposits  to  the  order  of  the  Referees  as  from 
time  to  time  may  be  required  by  them." 

My  company  was  retained  to  make  a  scien- 
tific study  of  the  piece  rates  and  to  arrange 
schedules  on  a  basis  of  compensation  by  units 
of  work.  The  value  of  these  units  can  be  ex- 
pressed according  to  the  purchasing  power  of 

149 


The  Organization  of  Modern  Business 

the  dollar.  There  was  no  wild  enthusiasm  over 
accepting  this  scientific  basis  of  work.  If  there 
had  been  I  should  have  feared  for  its  success. 
It  was  frankly  a  new  idea  to  both  the  employers 
and  the  trade  unionists,  and  they  only  accepted 
it  after  very  thorough  discussion  and  question. 

One  of  the  most  interesting  meetings  I  have 
ever  attended  was  that  of  the  union  representa- 
tives and  as  many  of  the  members  as  could 
crowd  themselves  in  the  hall  to  ask  me  ques- 
tions preliminary  to  the  acceptance  of  the  idea. 
After  full  consideration  they  accepted,  and  our 
engineers  are  working  out  standards  of  effi- 
ciency based  on  time  studies  through  the  thou- 
sands of  operations  involved  in  the  making  of 
women's  clothing. 

There  is  no  longer  any  guessing  about  wages; 
there  is  no  longer  anything  to  compromise 
about.  The  employers  and  the  employees  have 
decided  that  the  only  mutually  satisfactory 
joinder  must  be  to  gain  production — it  is  not 
an  elocutionary  alliance,  it  is  a  producing  one. 
And  further,  the  employers  have  guaranteed 
nearly  a  full  year's  work;  that  is,  they  have  set 
themselves  to  taking  the  clothing  trade  out  of 
the  black  list  of  seasonal  industry. 

But  what  did  they  decide  about  the  closed 
shop  ?  It  was  not  necessary  to  decide  anything. 

150 


Choosing  a  Labor  Policy 

The  shops  are  open.  But  since  the  unions  and 
the  employers  are  jointly  paying  for  the  entire 
cost  of  the  reorganization  of  the  industry,  on  a 
scientific  basis,  every  employee  will  probably 
become  a  union  member,  for  otherwise  he  would 
be  a  parasite. 

The  union  is  probably  a  passing  phase  of 
industry.  When  all  parties  realize  what  indus- 
try is,  the  union  will  no  more  be  necessary  than 
is  a  vigilance  committee  in  a  well-governed 
community.  But  it  can  be  as  at  Cleveland,  a 
great  constructive  force.  In  other  communi- 
ties I  have  found  better  results  through  the 
shop-committee  system.  (Some  of  which  I 
have  presented  in  "When  the  Workmen  Help 
You  Manage  "—The  Century  Co.,  1919.)  But 
the  point  that  I  want  to  make  is  this : 

It  is  always  bad  to  commit  oneself  to  any 
kind  of  a  rigid  policy  that  is  designed  to  be  of 
national  application.  The  facts  in  the  shop 
or  small  district  will  decide  the  policy.  Let  us 
be  chary  of  perfection. 


151 


CHAPTER  VIII 

GETTING  EXECUTIVE   LEADERSHIP 

AN  executive  organization  consists  of  some- 
thing more  than  a  chart  which  records  that  the 
executive  power  begins  with  the  president,  the 
chairman  of  the  board  of  directors  or  the  chair- 
man of  the  executive  committee,  as  the  case 
may  be,  and  then  descends  and  subdivides 
through  a  number  of  departments  and  execu- 
tives, depending  upon  the  size  of  the  institu- 
tion. Such  a  chart  is  exceedingly  useful  be- 
cause it  is  about  the  only  way  the  working  of 
the  business  can  be  visualized.  But  the  ques- 
tion that  I  find  it  necessary  to  ask  when  view- 
ing one  of  these  specimens  of  the  draughts- 
man's art  is: 

How  much  initiative  and  real  power  have 
these  subordinate  executives  in  their  neat  little 
charted  cages? 

It  is  in  the  answer  to  this  question  that  we 
discover  whether  the  division  and  subdivision 
of  power  make  for  a  live  and  throbbing  com- 
pany of  co-workers,  or  whether  these  lines 

152 


Getting  Executive  Leadership 

merely  show  the  routes  by  which  all  matters 
travel  to  the  top.  Is  the  chart  a  map  of  the 
confines  of  the  human  energy  employed,  or  does 
it  show  the  direction  that  the  various  units  of 
human  energy  shall  move  in?  Or  again,  does 
it  merely  indicate  how  the  "buck"  passes? 

In  a  previous  chapter  I  have  said  that  many 
of  the  difficulties  that  hamper  a  company's 
progress — and  especially  many  of  the  labor 
disorders — arise  from  a  lack  of  executive  lead- 
ership. Therefore  a  form  of  organization  must 
be  adjudged  good  or  bad  according  to  whether 
it  encourages  or  discourages  leadership. 

An  organization  is  nothing  of  itself.  When 
one  speaks  of  the  automatic,  smooth-running 
machinery  of  Big  Business,  one  is  talking  non- 
sense. The  wheels  do  not  go  around  of  them- 
selves: they  must  be  propelled  by  leadership. 
There  is  more  danger,  we  are  just  beginning 
to  realize,  from  over-organization  than  from 
under-organization  because  the  former  dis- 
courages leadership.  George  Eastman  once 
said  that  one  of  his  greatest  fears  was  over- 
organization.  He  was  afraid  that,  unwittingly, 
his  large  affairs  might  become  so  scientifically 
arranged  that  each  man  would  find  himself 
bound  hand  and  foot  with  the  red  tape  of  an 
inflexible  routine. 

153 


The  Organization  of  Modern  Business 

Some  of  our  most  effective  business  instru- 
ments have  no  conscious  organization,  and  such 
an  "  unorganized "  organization  is  often  the 
best  of  all,  for  then  the  people  are  not  con- 
cerned with  limitations  of  authority,  and  they 
work  together  in  a  perfect  harmony.  That  is 
the  situation  at  the  Newport  News  Ship  and 
Engine  Building  Company,  where,  although 
there  is  a  very  specific  organization,  it  is  not 
down  on  paper.  It  exists  by  tacit  agreement. 
An  absolutely  free  play  for  initiative  is  always 
of  the  highest  value — provided  a  check  exists 
against  any  individual  error  of  judgment  going 
too  far.  In  the  shipbuilding  company  the  check 
will  be  found  in  the  close  personal  association 
of  the  various  executives.  They  consult  among 
one  another,  not  through  any  rule,  but  because 
they  honestly  want  to  get  the  benefit  of  opinion 
and  advice. 

We  are  frankly  in  something  of  a  transitory 
stage  in  the  matter  of  executive  organization. 
Years  ago  when  interests  were  smaller,  every 
concern,  no  matter  how  large  it  might  be,  was 
built  up  by  one  man ;  he  carried  it  on  his  shoul- 
ders. Our  earlier  merchants  and  manufac- 
turers not  only  knew  everything  that  happened, 
but  every  detail  of  everything  that  happened* 
And  no  matter  how  large  a  force  they  might 

154 


Getting  Executive  Leadership 

assemble  around  them,  every  member  of  that 
force  was  really  an  office  boy  or  a  clerk — re- 
gardless of  his  title — and  quite  without  discre- 
tion. For  the  small,  one-man  business,  this  is 
still  the  best  type  of  organization — provided 
the  man  at  the  head  is  content  to  stay  everlast- 
ingly on  the  job,  and  has  the  ability  really  to 
direct.  We  are  sometimes  organizing  when  we 
had  better  be  working. 

With  the  growth  of  the  larger  corporation 
came  the  question  of  the  delegation  of  au- 
thority. The  term  "  delegation  of  authority " 
is  unfortunate  because  really  it  means  that  the 
delegate  has  very  narrow  limits  to  his  discre- 
tion. And,  in  an  organization  where  authority 
is  delegated,  we  will  find  practically  the  old- 
time  one-man  control,  excepting  that  the  affairs 
of  the  business  come  to  the  head  in  abstract 
instead  of  in  detail.  With  him  still  rests  the 
final  "yes"  or  "no."  He  does  not  review:  he 
decides.  If  the  concern  becomes  large  enough, 
this  method  develops  into  a  very  highly  cen- 
tralized machine,  with  all  of  the  motive  power 
coming  from  one  man  at  the  head. 

In  order  to  get  away  from  this  rigid  centrali- 
zation another  form  has  found  favor  in  which 
the  executive  power  is  apparently  lodged  in  a 
committee  or  board  of  managers,  or  some  ap- 

155 


The  Organization  of  Modern  Business 

propriately  entitled  group.  It  is  supposed  that 
a  multiple-headed,  rather  than  a  single-headed, 
direction  is  better. 

We  have  a  still  further  development  along 
similar  lines  in  the  large  company  that  oper- 
ates many  factories  or  stores  in  various  parts 
of  the  country.  The  question  there,  too,  is  one 
of  centralization.  Is  it  better  to  concentrate 
all  of  the  power  in  the  home  office,  or  can  a 
looser  organization  be  made  effectual? 

There  is  not  the  slightest  doubt  that,  from  a 
purely  scientific  standpoint,  a  minimum  of 
waste  will  occur  in  that  sort  of  an  organization 
which  is  planned  after  the  manner  of  a  great 
machine  with  exactly  fitting  cogs,  and  every 
act,  as  well  as  every  bit  of  material,  exactly 
standardized.  Then,  applying  the  motive 
power  at  the  proper  point,  every  part  does  just 
its  work  and  all  of  its  work — and  nothing  more 
or  nothing  less.  But  an  executive  organization 
represents  a  gathering  together  of  human  be- 
ings in  order  that  their  collective  energy  may 
be  of  the  utmost  avail.  Now  remember  that 
we  are  dealing  with  human  beings  and  are  con- 
cerned with  getting  the  most  out  of  them.  We 
are  not  treating  of  something  that  is  abstract — 
that  if  solved  on  paper  will  also  be  solved  in 
practise. 

156 


Getting  Executive  Leadership 

For  a  time  it  was,  indeed,  believed  that  an 
organization  formula,  or  ritual,  or  system, 
could  be  so  perfected  that  the  head  of  a  com- 
pany might,  by  pushing  a  button,  have  prac- 
tically any  business  task  performed  perfectly 
and  on  a  scheduled  routine.  And  further,  it 
was  supposed  that,  given  a  perfect  plan,  any 
kind  of  human  being  would  fit  into  it  like  an 
interchangeable  part  and  perform  auspiciously 
at  just  about  a  living  wage.  "Get  cheap  peo- 
ple and  plan  their  work"  was  the  slogan.  Most 
banks,  for  instance,  were  put  together  on  this 
principle,  and  many  still  cherish  the  idea. 
Simply  an  immense  number  of  routines  were 
devised  throughout  our  fair  land  by  "experts 
in  organization. "  We  tried  to  do  business  on 
forms  and  card  indices.  The  theory  was  that 
if  you  put  a  high-priced  man  at  the  head,  gave 
to  him  practically  all  power  of  decision,  scat- 
tered a  few  moderate-priced  people  at  points 
where  minor  decisions  had  to  be  made,  then 
you  could  fill  up  all  the  spaces  with  the  lowest- 
priced  help.  In  the  little  view  of  business,  any 
form  of  organization  that  promised  an  in- 
creased reward  to  the  head  officers,  taken  out, 
as  it  were,  from  the  pockets  of  the  less  impor- 
tant, was  not  without  an  appeal. 

It  was,  however,  discovered,  painfully  it  is 

157 


The  Organization  of  Modern  Business 

true,  that  the  main  object  of  the  executive  side 
of  business  was  not  to  perform  a  certain  num- 
ber of  repetitive  operations  with  machine-like 
regularity,  that  a  business  was  not  static,  that 
it  had  relations  with  the  public,  and  that  the 
public  was  not  always  satisfied  to  have  a  purely 
mechanical  operation  performed  on  it. 

Take,  for  instance,  a  matter  which  is  purely 
mechanical — that  of  billing.  Mistakes  will  oc- 
cur in  billing — mistakes  will  occur  everywhere. 
But  there  are  few  things  that  irritate  an  indi- 
vidual more  than  the  receipt  of  an  incorrect 
bill.  No  normal  person  receives  bills  with 
pleasure,  and  when  he  gets  one  that  is  exces- 
sive he  is  apt  to  shoot  it  back  with  the  sharpest 
comment  he  can  command.  An  incorrect  bill 
promptly  corrected  can  be  made  the  oppor- 
tunity to  create  good-will.  The  quick  and 
courteous  acknowledgment  of  a  mistake  often 
makes  a  friend. 

But  in  a  purely  machine  organization  where 
there  is  no  discretion  excepting  at  the  top,  it  is 
a  long  and  arduous  proceeding  to  get  a  bill  cor- 
rected. The  machinery  will  often  have  no  re- 
verse. There  are  department  stores  in  this 
country,  there  are  business  organizations,  that 
seem  to  have  no  method  at  all  of  correcting  an 
improper  account.  A  customer  will  write  point- 

158 


Getting  Executive  Leadership 

ing  out  the  error,  he  will  get  a  card  acknowl- 
edging his  communication,  and  then  in  due 
course  he  will  get  another  incorrect  bill,  and 
this  time  probably  it  has  as  a  companion  a  re- 
quest for  payment.  The  human  cogs  in  the 
machine  do  not  care;  they  are  not  paid  to  care. 
They  are  paid  to  go  through  certain  motions, 
and  they  know  that  they  are  hired  only  because 
no  cheaper  means  of  doing  the  work  can  be 
found.  Under  such  conditions  they  would  be 
fools  if  they  did  care.  This  same  sort  of 
thing  shows  in  every  public  relation  of  this 
machine  type  of  organization.  It  gets  on  to 
a  basis  comparable  with  that  of  a  govern- 
ment office.  Practically  every  one  has,  at 
some  time  or  another,  complained  to  the  pos- 
tal department  for  some  negligence  in  delivery. 
The  first  reply  which  comes  after  many  days 
is  purely  formal.  Then  if  the  complaint 
is  serious,  one  eventually  receives  a  letter 
which,  if  it  says  anything  at  all,  must  be  con- 
sidered as  saying  that  there  is  no  basis  for  the 
complaint.  The  express  companies  had  the 
same  idea  well  worked  out.  A  claim  against  an 
express  company  in  any  amount  that  was  not 
worth  going  to  court  about  was  practically 
hopeless.  If  your  claim  were  adjusted,  it  was, 
as  a  rule,  about  six  months  after  the  happen- 

159 


The  Organization  of  Modern  Business 

ing.  And  the  managers  wonder  why  the  trials 
and  tribulations  of  express  companies  and  their 
perennial  pathetic  appeals  are  received  by  the 
public  with  gleeful  derision!  Practically  all 
public-service  corporations  for  a  time  followed 
the  same  rules  of  machine  conduct,  so  that  it  is 
to-day  all  but  impossible  for  the  average  public- 
service  corporation  to  receive  from  citizens  the 
same  treatment  that  those  citizens  would  cheer- 
fully accord  to  their  fellow  workers  in  distress. 
As  an  example  of  how  the  brainless,  mechanical 
organization  may  function,  take  the  example  of 
a  gas  company  near  New  York.  It  used  to  be 
very  unpopular — so  unpopular  that  finally  it 
dawned  upon  the  directors  that  perhaps  the 
business  was  being  injured,  and  they  elected  a 
new  president  who  was  instructed  to  see  why  it 
was  the  company  had  no  friends.  The  new 
president  was  a  young  man  who  had  no  train- 
ing in  the  then  approved  practises  of  public- 
service  corporations.  He  started  out  to  find 
the  trouble,  and,  as  a  first  step,  abandoned  the 
seclusion  of  the  private  office  of  his  predecessor 
and  took  a  desk  out  in  the  general  room.  A 
peculiarity  in  the  arrangement  of  the  depart- 
ments at  once  struck  him.  The  cashier's  win- 
dow, at  which  bills  were  paid,  was  only  a  few 
feet  from  the  complaint  desk.  This  latter  desk 

160 


Getting  Executive  Leadership 

was  presided  over  by  a  tired  young  man  work- 
ing for  a  tiny  salary,  and  he  seemed  to  think 
that  his  object  was  not  to  receive  complaints 
but  to  get  rid  of  them.  He  took  the  well-known 
attitude  that  any  one  who  objects  to  anything 
is  by  nature  a  crank  and  by  disposition  a  knave, 
and  so  around  the  complaint  desk  from  morn- 
ing until  night  surged  a  battle ;  sometimes  the 
clerk  was  efficient  enough  to  have  half  a  dozen 
complaints  going  at  once.  His  notion  of  suc- 
cess was  bound  up  in  the  word  "fight."  He 
would  have  made  a  fortune  in  the  I.W.W. 

The  president  noticed  that  many  of  the  peo- 
ple in  the  cashier 's  line,  overhearing  the  scraps 
at  the  complaint  bureau,  were  spurred  on  to 
think  of  complaints  that  they  might  make  on 
their  own  account,  and  a  goodly  portion  of 
them,  immediately  after  paying  their  bills, 
joined  the  line  of  the  complaint  bureau,  anxious 
for  the  chance  to  break  a  lance  with  the  com- 
pany's representative.  The  complaint  bureau 
thus  not  only  did  not  settle  complaints  but 
helped  to  promote  them.  The  president  rea- 
soned that  every  complaint  was  an  opportunity 
to  sell  the  company  to  the  customer,  so  he  abol- 
ished the  complaint  desk,  opened  a  service  room 
far  removed  from  the  cashier's  window,  and 
put  it  in  the  charge  not  of  a  clerk  but  of  a  spe- 

161 


The  Organization  of  Modern  Business 

cially  elected  executive  of  the  company  drawing 
a  good  salary,  and  under  instructions  to  see 
that  no  reasonable  complaint  went  by  without 
satisfactory  adjustment,  and  that  even  the  most 
unreasonable  complaints  received  at  least  ade- 
quate attention.  Recently  that  company  found 
itself  forced  slightly  to  increase  the  rates,  and 
instead  of  being  violently  opposed  they  found 
that  their  people  accepted  the  increase,  not 
cheerfully,  for  that  would  not  be  human,  but  as 
cheerfully  as  the  circumstances  would  permit 
and  in  confidence  that  the  company  was  playing 
fair.  The  old  management  had  simply  taken 
for  granted  that  their  organization  was  suffi- 
cient. For  if  you  have  a  department  of  com- 
plaints, have  you  not  done  your  duty?  "Why 
bother  with  the  public  relations? 

A  private  business,  organized  in  this  fashion, 
may,  if  the  idea  behind  it  is  sufficiently  good, 
or  if  the  competition  is  trivial,  muddle  though. 
Sometimes  where  the  managing  head  has  an 
ability  approaching  genius,  the  enterprise  may 
prosper  exceedingly,  but  neither  the  business 
nor  the  prosperity  is  stable.  There  is  no 
proper  foundation,  and  we  may  regard  it  as 
depending  upon  whether  the  ill-will  that  its 
management  generates  catches  the  good-will 

162 


Getting  Executive  Leadership 

contained  in  the  fundamental  idea.  Usually  the 
ill-will,  given  time,  wins. 

But  more  important  than  any  other  consid- 
eration is  the  fact  that  a  concern  organized  on 
this  principle  will  gather  to  itself  a  minimum 
of  ideas,  and  although  it  may  be  very  busy  and 
successful  over  a  number  of  years,  it  will  start 
downward  once  it  meets  the  competition  of  a 
business  that  is  constantly  receiving  new  ideas. 

It  may  seem  haphazard  to  rely  greatly  on  in- 
dividual initiative.  It  would  seem  to  be  the 
part  of  wisdom  to  safeguard  and  to  plan  activi- 
ties, to  develop  teamwork,  and  thus  to  elimi- 
nate waste  of  material  and  waste  of  human  ac- 
tivity. That  is  undoubtedly  the  case.  An  un- 
organized business  cannot  get  anywhere.  Noth- 
ing gets  done,  although  every  one  is  working 
overtime.  But  what  I  am  warning  against  is 
the  thought  of  trying  to  provide  against  every 
emergency  and  contingency  by  a  documentary 
instead  of  by  a  human  means.  It  is  perfectly 
impassible  to  stifle  individual  initiative  and 
to  expect  to  achieve  success. 

To  take  the  ultimate  in  regulation,  look  at 
the  truly  extraordinary  inconveniences  of 
bureaucratic  government.  In  a  Communist 
state  each  human  being  is  supposed  to  occupy 

163 


The  Organization  of  Modern  Business 

a  particular  pigeonhole  to  which  he  is  assigned 
by  an  allocating  body  and  which  also  prescribes 
what  he  shall  eat  and  wear.  There  is  a  place 
for  every  one,  and  every  one  is  in  his  place. 
On  paper  it  is  all  perfect.  The  Communist 
state,  from  a  draughtsman's  viewpoint,  leaves 
nothing  to  be  desired.  They  tried  this  out  in 
Hungary  for  a  while,  they  are  trying  it  out  in 
Russia,  and  they  tried  the  same  sort  of  thing, 
but  differently  entitled  by  reason  of  the  war 
regulations,  in  most  of  the  countries  of  Europe. 
What  was  the  result?  Wherever  there  was  a 
highly  scientific  and  well-systematized  method 
for  distributing  food  and  clothing,  those  who 
needed  food  and  clothing  spent  most  of  their 
time,  regardless  of  the  supply,  waiting  in  line 
at  offices  to  get  the  necessary  authorizations. 
The  other  day  I  came  upon  a  note  made  by  a 
resident  of  Hungary  during  the  Communist 
administration.  He  had  broken  a  window  and 
wanted  it  repaired,  and  this  is  what  he  had 
to  do. 

First  he  went  to  the  local  authority,  stated 
his  case  and  filed  the  papers  necessary  to  in- 
form officialdom  that  he  was  alive  and  a  citizen, 
and  had  a  broken  window.  He  was  then  sent 
to  the  central  authority,  where  he  filed  another 
set  of  papers  more  firmly  establishing  that  he 

., 


Getting  Executive  Leadership 

had  a  broken  window.  In  due  season  that  body 
authorized  him  to  proceed  to  the  department 
more  intimately  concerned  with  the  repair  of 
broken  windows  and  the  establishing  of  the 
fact  that  his  window  was  broken.  In  official- 
dom repetition  is  synonymous  with  certainty. 
Here  again  he  filed  all  of  the  necessary  papers 
and  in  due  time  a  sort  of  Board  of  View  com- 
posed of  two  eminent  Communists  came  out 
and  surveyed  the  broken  window.  They  re- 
ported back  in  due  course,  and  again  m  due 
course  the  householder  received  authority  to  go 
to  a  glazier  and  have  the  window  replaced  at 
a  fixed  price.  The  glazier,  being  authorized  to 
act,  then  began  his  official  quest  for  a  pane  of 
glass  of  the  proper  size,  and  finally,  at  the  end 
of  about  four  months,  the  new  window  was  in 
place. 

We  regard  this  as  a  perfectly  ridiculous  ex- 
hibition of  what  officials  can  do  when  right  on 
the  job,  but,  as  a  matter  of  fact,  there  are 
plenty  of  corporations  in  this  country  in  which 
a  stenographer  has  to  go  through  about  as  cum- 
bersome a  routine  in  order  to  get  a  new  pencil. 
I  know  offices  where  the  under-executives  buy 
most  of  their  own  supplies  rather  than  hang 
around  waiting  for  their  requisitions  to  be 
acted  upon.  There  are  highly  organized  com- 

165 


The  Organization  of  Modern  Business 

panies  where  the  employees  frequently  will  not 
use  proper  tools  or  appliances,  although  such 
are  in  the  stockroom  ready  for  use,  merely  he- 
cause  of  the  infinite  trouble  and  delay  in  secur- 
ing them. 

System  up  to  a  point  facilitates  operation,  it 
takes  the  conscious  effort  out  of  small  move- 
ments and  liberates  the  mind  for  larger  affairs ; 
but,  carried  beyond  that  point,  there  is  a  like- 
lihood that  while  conserving  it  will  be  wasting. 
Where  the  line  must  be  drawn  is  always  an  in- 
dividual matter,  and  in  the  most  efficient  or- 
ganization, careful  record  will  be  made  accord- 
ing to  the  temperament  of  the  executives  and 
department  heads  in  order  to  avoid  routine  that 
will  burden. 

The  nice  point  in  executive  organization  is  to 
make  the  fullest  use  of  individualism  that  is 
consistent  with  teamwork,  for  then  we  are  in- 
suring the  flow  of  fresh  ideas,  while  at  the  same 
time  we  are  not  letting  individualism  run  riot. 

This  general  principle  holds  through  the  en- 
tirety of  corporate  organization,  through  the 
tiny  corporation,  and  through  the  great  cor- 
poration, with  many  branches  and  subsidiary 
corporations,  and  is  distinctly  a  modern  de- 
velopment and  a  reaction  to  the  highly  centra- 
lized machine  structure  which  was  at  first  be- 

166 


Getting  Executive  Leadership 

lieved  to  be  the  ideal  form  of  organization,  just 
as  for  a  time  after  Taylor  had  begun  his  inves- 
tigation it  was  thought  (although  never  by 
Taylor  himself)  that  a  man  could  be  turned 
into  a  machine.  It  is  the  answer  to  the  idea 
that. the  size  of  an  institution  is  limited  by  the 
directing  power  of  a  single  head. 

We  have  to  consider  the  human  element,  and 
it  is  a  question  of  fact  in  any  given  case 
whether  any  economy  gained  by  centralization 
of  management  in  purchasing  or  in  sales,  or  in 
any  department,  is  not  balanced  by  the  loss  of 
human  initiative. 

Take  the  chain  stores,  for  instance.  The  five- 
and  ten-cent  stores  depend  upon  a  central 
purchasing  power,  and  they  distribute  their 
product  to  counters  in  their  various  stores,  at 
which  are  present  not  saleswomen,  but  merely 
people  to  handle  the  money.  The  goods  are 
supposed  to  sell  themselves,  and  largely  on 
price.  But  it  has  been  discovered  that  the  same 
principle  will  not  work  in  a  dollar  store,  or 
even  in  a  fifty-cent  store.  It  will  not  work 
wherever  salesmanship  is  required.  Then  the 
necessity  for  a  personal  contact  appears,  and 
that  personal  contact  is  not  gained  through  an 
uninterested,  ill-paid  clerk. 

This  fact  is  advantaged  in  the  cigar  store  and 

167 


The  Organization  of  Modern  Business 

drug  chains.  There  the  purchasing  is  cen- 
tralized, and  it  might  seem  that  the  five-  and 
ten-cent  store  principle  of  quasi-self-service 
would  obtain.  But  the  purchase  of  tobacco  and 
drugs  is  on  a  personal  basis.  A  man  does  not 
always  want  the  same  kind  of  cigar,  or  ciga- 
rette, or  smoking  tobacco;  his  taste  changes, 
and  he  wants  to  shop  around  a  little  in  the 
stock.  It  is  likewise  with  a  woman  in  a  drug 
shop.  Therefore  instead  of  low-priced  clerks, 
the  more  successful  of  these  stores  pay  far 
above  the  average  for  retail  salesmanship  serv- 
ice and  add  a  commission  on  sales  that  makes 
the  employment  distinctly  well  paid. 

There  is  no  question  in  chain  distribution  but 
that  the  purchasing  should  be  from  a  central 
source,  and  in  general  purchasing  can  be  best 
handled  from  a  central  source ;  but  there  are  a 
not  inconsiderable  number  of  organizations, 
especially  those  joined  through  a  holding  com- 
pany, where  centralized  purchasing  is  not  the 
most  efficient  because  the  relation  between  the 
using  unit  and  the  central  purchasing  agency 
cannot  be  made  close  enough  to  take  advantage 
of  the  economies  that  may  be  effected  in  the 
price  of  things  bought  in  bulk. 

In  the  General  Motors  Company,  for  in- 
stance, most  of  the  units  are  so  large  that  there 

168 


Getting  Executive  Leadership 

would  be  little  advantage  in  combined  purchas- 
ing, and  the  combined  purchasing  department 
would  have  to  be  a  very  complex  affair.  They 
have  found  it  better  in  most  cases  to  maintain 
wholly  separate  buying,  manufacturing,  and 
selling  organizations  for  each  of  their  branches, 
on  the  theory  that  the  competition  to  achieve 
results  will  create  a  greater  and  more  profit- 
able business  than  were  any  of  the  attention  of 
executives  shifted  to  standardization  of  econ- 
omy. The  Eastern  Kodak  Company  is  simi- 
larly organized.  There  each  unit,  although 
five  of  them  are  located  in  the  one  city,  may 
take  or  leave  the  services  of  the  centralized  de- 
partments of  the  corporation.  The  head  of  the 
unit  has,  in  this  respect,  an  entire  discretion. 
He  is  not  merely  the  manager  of  his  depart- 
ment: he  has  every  indicia  of  ownership.  He 
does  his  own  thinking,  and  his  thinking  is  not 
judged  by  the  application  of  a  foot  rule  to  its 
processes  but  purely  by  the  results  that  he 
achieves. 

A  very  striking  example  of  the  relative  effi- 
ciency of  large  centralization  as  opposed  to 
competitive  decentralization  is  offered  by  the 
Standard  Oil  Company  and  by  several  other 
large  corporations  which  were  dissolved  by  the 
courts  as  "trusts."  Most  of  these  companies 

169 


The  Organization  of  Modern  Business 

were  formerly  managed  in  rigid  fashion.  The 
executives  merely  carried  out  orders.  When- 
ever an  emergency  arose  they  wired  head- 
quarters as  to  what  to  do.  In  fact,  the  late 
George  W.  Perkins  firmly  believed  that  it  was 
the  telephone  that  created  the  big  organization 
because  without  it  the  branches  could  not  keep 
in  constant  touch  with  the  home  office.  These 
corporations,  after  being  officially  dissolved 
and  separated  into  their  component  parts,  pros- 
pered so  greatly  that  the  total  business  done 
by  the  disjoined  units  far  exceeds  that  ever 
done  by  the  combination.  Many  people  have  in- 
clined to  the  belief  that  this  new  prosperity  was 
due  to  some  sort  of  mysterious  chicanery. 
They  say  that  the  Sherman  Act  is  a  joke.  There 
is  nothing  mysterious  about  the  process.  The 
dissolution  released  a  great  fund  of  latent  hu- 
man ability  that  had  previously  been  confined 
within  rigid  lines.  It  is  entirely  to  be  expected 
that  the  men,  functioning  for  the  first  time  on 
their  own  accounts,  would  apply  all  of  their 
previously  dammed-up  energy  to  the  extension 
of  the  new  corporate  units. 

One  of  our  very  largest  industries  is  now  suf- 
fering acutely  from  too  highly  centralized  an 
organization.  It  has  had  severe  labor  difficul- 
ties and  will  probably  have  more,  and  there  is 

170 


Getting  Executive  Leadership 

a  supreme  dissatisfaction  extending  through 
the  whole  executive  staff.  Through  travail  a 
new  organization  will  there  be  born. 

What,  then,  do  we  really  know  about  the  or- 
ganization either  of  a  number  of  companies 
into-  a  unit  or  of  the  executive  work  within  a 
single  company?  The  same  general  principles 
hold  for  both  cases.  It  does  not  make  much 
difference  whether  the  departments  are  all 
under  the  one  roof  or  under  a  dozen  in  so  far 
as  executive  management  is  concerned.  The 
reasons  for  distributing  the  work  through 
many  locations  arise  from  economic  causes — 
or  by  accident. 

These  several  things  we  do  know: 

(1)  That  the  one-man  control  is  the  best  in  the 
world  if  that  one  man  is  big  enough  to  manage  every- 
thing.   But  a  business  must  be  small,  indeed,  to  per- 
mit  one   man   actually   to   know   and   to   supervise 
everything.     The  danger  is  always  present  that  he 
thinks  he  knows  when  really  he  does  not  know.    And 
naturally  there  is  no  permanency  in  this  kind  of  man- 
agement.   If  the  one  man  is  away  or  ill  the  business 
stops,  and,  of  course,  when  he  dies  the  business  van- 
ishes or  has  to  be  rebuilt. 

(2)  The  one-man  control  is  limited  in  scope;  its 
scope  is  not  extended  by  the  imposition  of  a  great 
amount  of  routine  by  which  the  results  of  all  that  is 


The  Organization  of  Modern  Business 

done  are  supposed  to  come  before  the  chief  executive. 
Regulation  will  not  substitute  for  management,  and  a 
business  formed  on  the  theory  that  regulation  can  do 
more  than  regulate  is  bound  to  fail.  Where,  by  rea- 
son of  routine,  the  affairs  of  the  company  do  get  back 
to  the  head  and  he  makes  all  of  the  decisions  on  ab- 
stracts of  the  facts,  he  will  violate  the  first  principle 
of  one-man  management — that  is,  of  exact  knowledge. 
He  will  have  to  decide  on  theory  instead  of  on  facts 
— but  he  will  think  that  he  is  acting  on  facts.  The 
result  will  be  a  static,  listless  organization  that  is 
always  waiting  around  for  decisions  to  be  made. 
There  will  be  no  initiative  anywhere  excepting  at  the 
top,  and  there  will  be  frequent  clashes  of  authority 
among  the  lower  executives.  For  when  a  man's  au- 
thority is  closely  circumscribed  he  will  be  always 
tugging  at  his  bonds  and  trying  to  get  on  the  next 
fellow's  premises.  The  only  object  of  routine  is  to 
facilitate  operations  that  are  mechanical — to  free  the 
mind  from  sequential  detail. 

(3)  The  one-man  type  is  not  preserved  in  the  com- 
mittee or  board  of  managers  style  of  administration. 
In  this  plan  the  heads  all  meet  and  decide  the  policies 
among  them.  The  result  is  that  instead  of  individual 
responsibility  we  have  group  responsibility  and  in- 
evitably the  kind  of  action  which  is  known  as  "play- 
ing safe."  A  great  difference  exists  between  consul- 
tation on  policies  of  general  import  and  an  attempt 
to  manage  on  commonly-arrived-at  decisions.  The 
first  brings  results  to  the  table  for  general  inspection 

172 


Getting  Executive  Leadership 

and  is  of  great  value,  for  then  each  man  is  put  upon 
his  mettle;  in  the  second  the  whole  committee  mulls 
through  the  whole  progress  of  the  business — although 
it  must  be  obvious  that  they  cannot  all  be  specialists 
in  every  department  of  that  business.  Hence  we  ob- 
tain not  the  best  that  is  in  the  men,  but  just  the  gen- 
eral average  on  which  there  can  be  an  agreement. 


Take  these  principles.  Does  it  follow  that 
there  should  be  no  organization?  Should  men 
just  run  on  as  they  see  fit?  And  should  the 
chief  executive  have  any  duties? 

The  ideal  organization  is  this:  The  chief 
executive  is  not  an  executive  at  all  but  a 
checker-up  and  inspirer.  He  properly  should 
have  no  duties.  His  place  is  to  see  the  results 
of  each  man's  work  and  to  discover  what  is 
wrong  or  how  best  the  activity  of  a  division 
may  be  increased,  and  then  to  see  that  the  de- 
partments act  in  unison.  He  does  not  delegate 
authority:  he  reviews  authority  by  results  ob- 
tained. This  throws  the  responsibility  for  re- 
sults upon  the  under-executives,  and,  in  the 
ideal  type,  each  of  these  men  has  full  authority 
in  his  own  department.  If  he  misuses  his  au- 
thority, it  is  not  the  fault  of  the  plan  but  of  the 
men :  the  wrong  man  is  in  charge,  and  it  is  the 
duty  of  the  head  executive  to  see  that  the  right 

173 


The  Organization  of  Modern  Business 

man  is  in  charge.  Likewise,  within  a  depart- 
ment the  head  will  allocate  responsibility — 
each  man  will  run  his  subdivision  within  the 
general  plan  and  be  responsible  for  obtaining 
results.  Every  man  in  the  organization  will 
be,  so  to  speak,  on  a  piecework  basis. 

How  this  can  best  be  arranged  is  to  be  de- 
cided on  the  facts.  The  big  point  is  to  divide 
activities  and  to  place  responsibility  so 
squarely  that  not  only  will  initiative,  and  con- 
sequently dignity,  be  built  up,  but  also  that  the 
old  game  of  "passing  the  buck"  cannot  be 
played. 

With  this  type  of  organization  the  fullest  in 
every  man  is  realized,  and  there  is  no  human 
limit  at  all  to  the  size  of  the  business.  This 
is  the  new  way  of  business.  The  centralization 
should  come  not  in  authority  but  in  finance  and 
research. 


174 


CHAPTER  IX 

THE  USE  OF  MONEY  IN  BUSINESS 

WHEN  a  man  in  business  needs  money  his  first 
thought  is  to  borrow  it.  One  may  find  elabo- 
rate treatises  on  business  finance  in  which  the 
whole  subject  is  approached  as  though  in  busi- 
ness we  dealt  with  money  as  such.  One  might 
infer  that  successful  business  somehow  grew 
out  of  creating  marketable  securities,  or  form- 
ing sound  financial  connections,  or  in  some 
other  way  closely  linking  banking  and  business. 

Let  us  take  business  finance  out  of  the  mar- 
ble halls  of  banking  and  see  if  more  real  financ- 
ing cannot  be  done  inside  than  outside  the  shop. 
Let  us  see  if  an  insistent  demand  for  money  is 
an  indication  of  prosperity,  or  an  indication  of 
bad  business  management  which  has  confused 
the  functions  of  business  and  of  banking,  or, 
further,  whether  that  management  in  a  desire 
for  easy  money,  has  borrowed  for  speculation 
instead  of  for  business  processes. 

It  will  not  do  to  put  down  positive  and  in- 
variable rules;  each  case  stands  squarely  on 

175 


The  Organization  of  Modern  Business 

its  own  merits.  This  manufacturer  may  find, 
that  he  is  first  of  all  a  banker.  He  may  find 
that  his  most  profitable  way  of  doing  business 
is  to  lend  goods  over  long  periods.  He  may 
have  a  class  of  customers  who  want  extremely 
long  credits.  Of  course  one  might  say  that  his 
proper  course  would  be  to  educate  these  cus- 
tomers into  the  use  of  short  credit,  but  that  is 
the  counsel  of  perfection.  No  reason  in  the 
world  exists  why  he  should  not  extend  one, 
two,  or  three-year  credits  if,  and  this  is  the  im- 
portant point,  he  so  organizes  himself  that  the 
manufacturing  and  the  banking  phases  of  his 
business  are  not  confused — if  he  remembers 
that  he  is  appearing  in  two  functions ;  first,  as 
a  manufacturer  and  second  as  a  banker  who 
lends  goods  instead  of  the  money  to  buy  them. 
His  danger  is  in  confusing  the  costs,  the  profits, 
and  the  losses  of  the  two  operations.  Because 
the  Germans  worked  out  a  right  division  of 
functions  they  were  able  to  sell  against  all  com- 
petitors in  the  long  credit  markets  such  as 
Russia  and  South  America. 

Again  it  may  be  the  speculative  feature  that 
is  of  the  highest  importance.  This  is  especially 
hazardous  because  speculation  in  materials  is 
so  often  defined  as  "skilled  buying."  I  know 
of  hundreds  of  concerns  with  elaborate  manu- 

176 


The  Use  of  Money  in  Business 

facturing  and  selling  organizations  that  really 
depend  for  profit  upon  the  ability  of  the  execu- 
Jives  to  buy  raw  materials  at  a  low  price  and 
sell  them,  slightly  converted,  at  a  high  price. 

The  maker  of  a  product  in  which  the  value 
of  the  raw  material  is  high  as  compared  with 
the  value  of  the  labor  finds  himself  burdened 
with  all  the  problems  of  making  and  distribut- 
ing but  dependent  for  his  profits  upon  guessing 
the  course  of  the  raw  material  market.  Most 
cotton  goods  manufacturers  are  in  this  position, 
so  are  the  makers  of  leather  belting,  of  auto- 
mobile tires,  and  of  food  preparations.  This 
entire  class  is  apt  not  only  to  buy  heavily 
against  estimated  needs  in  a  rising  market  but 
also,  when  opportunity  offers  in  such  a  market, 
to  buy  far  beyond  their  needs  in  the  hope  of  re- 
selling the  raw  material  at  a  profit.  They  thus 
mix  the  functions  of  manufacture  and  com- 
modity speculation  and,  because  they  make 
more  money  in  trading  with  raw  materials  on 
a  rising  market  than  in  manufacturing  them, 
they  usually  get  so  deeply  into  the  speculative 
side  that  they  are  caught  with  heavy  inven- 
tories when  the  market  turns. 

The  wise  speculators  take  their  losses  at 
once ;  the  foolish  ones,  putting  statistics  against 
human  trends,  decide  that  the  slump  will  be 

177 


The  Organization  of  Modern  Business 

only  temporary.  They  attempt  to  hold  their 
stocks  for  still  higher  prices  until  finally  they 
can  no  longer  sustain  their  extended  borrowing 
capacity  and  are  compelled  to  unload  at  a 
crushing  loss. 

There  is  nothing  inherently  reprehensible  in 
speculation.  In  the  end  it  promotes  produc- 
tion and  really  equalizes  prices  over  a  period. 
The  point  is  for  the  owners  to  decide  whether 
they  want  to  be  manufacturers  or  speculators. 
If  they  decide  that  they  aie  speculators  the 
next  decision  to  be  made  is  whether  or  not  it 
is  economy  to  support  a  factory  and  a  sales 
organization.  They  might  do  better  to  chuck 
those  bits  of  trouble  and  take  on  a  ticker  serv- 
ice ;  why  should  a  speculator  have  a  high  over- 
head? 

Then  we  have  the  business  which  combines 
banking  and  speculation.  The  jobber  often 
answers  this  description.  A  jobber  is  some- 
times an  industrial  banker  in  that  he  finances 
both  the  small  manufacturer  and  the  retail  dis- 
tributor, but  more  often  he  is  a  speculator  de- 
pending for  his  profit  not  upon  a  brokerage 
on  the  goods  he  handles  but  in  buying  them  low 
and  selling  them  high.  Sometimes  he  has  all 
of  these  functions.  Likewise  the  retailer  may 
be  more  of  a  speculator  than  a  merchandiser. 

178 


The  Use  of  Money  in  Business 

Instead  of  putting  his  usual  mark-up  on  a  lot 
of  goods  that  he  buys  at  an  exceptionally  low 
price  and  thus  getting  a  reputation  for  fair 
pricing,  he  may  choose  to  put  such  goods  into 
his  warehouse  in  the  hope  that  he  can  sell  them 
later  in  a  higher  market. 

Most  of  the  dangers  in  business  finance  arise 
out  of  putting  the  speculative  side  above  the 
fabricating  or  merchandising.  It  is  just  as 
dangerous  for  a  corporation  to  speculate  in 
goods  as  to  speculate  in  the  stock  market ;  in 
many  ways  it  is  more  dangerous  because  very 
few  staple  markets  are  nearly  so  well  organized 
as  is  the  stock  market  and  hence  one  cannot 
often  get  so  quickly  out  of  goods  as  out  of 
stocks. 

The  first  policy,  therefore,  to  be  determined 
in  any  business  institution  is  whether  the 
strictly  business  or  the  strictly  speculative 
feature  shall  dominate.  One  or  the  other 
should  dominate;  but  often  I  wonder,  in  ob- 
serving the  demands  of  some  concerns  for 
money,  whether  their  executives  and  bankers 
realize  this  self-evident  fact.  How  often  do 
corporations  ask  aid  to  help  carry  speculative 
purchases  that  are  disguised  in  the  statement 
of  condition  as  "raw  material,"  " goods  in 
process,"  or  " finished  product?"  I  will  com- 

179 


The  Organization  of  Modern  Business 

monly  take  a  large  inventory  not  as  an  evi- 
dence of  forehandedness  but  as  an  evidence  of 
possibly  unconscious  speculation. 

The  divorce  of  manufacture  and  speculation 
would  go  far  toward  the  stabilization  of  in- 
dustry. The  present  policy  is  unscientific.  A 
manufacturer  will  commonly  offer  his  wares 
for  future  delivery  at  a  price  which  he  arrived 
at  by  guessing  the  course  of  the  raw  material 
market.  If,  at  the  time  of  delivery,  the  price 
of  the  raw  stuff  has  gone  down  then  he  will 
try,  by  curtailing  production,  to  keep  up  the 
market  price  on  the  finished  product  so  that 
both  he  and  the  customer  may  get  out  at  the 
price  quoted.  Curtailing  production  further 
depresses  raw  material  prices  and  opens  wide 
the  door  to  the  man  who  has  bought  far  ahead 
of  his  actual  needs. 

From  time  immemorial  manufacturers  have 
met  in  solemn  conclave  and  decided  officially 
or  unofficially,  according  to  the  legal  advice 
that  they  received  at  the  moment,  to  maintain 
prices  by  curtailing  production,  but  they  have 
never  made  a  nickel  by  so  doing.  Were  it  not 
that  so  few  of  them  know  the  cost  of  manu- 
facture and  especially  the  cost  of  idle  plants 
they  would  not  cling  to  that  ancient  notion;— • 

180 


The  Use  of  Money  in  Business 

a  notion  that  comes  down  from  the  days  when 
plant  investments  were  small. 

So  when  we  talk  about  financing  operations 
of  this  sort,  dignified  as  a  rule  under  some 
phrase  that  contains  a  note  or  two  about 
' '  steadying  the  market, ' '  we  are  not  really  hav- 
ing much,  if  anything,  to  do  with  business.  We 
are  rather  finding  satisfactory  excuses  for 
sending  good  money  after  bad.  When  a  con- 
cern fails  because  of  its  inability  "to  carry " 
its  inventories,  frankness  should  compel  a 
somewhat  different  verdict  running  more  to 
the  effect  that  the  company  had  bet  on  the 
wrong  horse. 

The  mixing  of  manufacturing  and  selling 
with  speculation  is  the  greatest  of  all  deter- 
rents to  sound  business  practise  and  organiza- 
tion. It  is  the  function  of  a  manufacturer  to 
manufacture,  of  a  merchandiser  to  merchan- 
dise. They  should  look  for  their  recompense 
in  the  results  of  the  skill  with  which  they  per- 
form their  functions.  Their  profits  per  dollar 
must  necessarily  be  small — and  arduously 
earned.  They  cannot  expect  to  become  mil- 
lionaires over  night.  It  is  hard  for  men  pur- 
suing this  conservative  course  to  see  others 
come  into  the  market  and,  without  manufactur- 

181 


The  Organization  of  Modern  Business 

ing  or  merchandising  skill,  clear  stupendous 
profits  merely  by  buying  low  and  selling  high. 
If  a  market  during  a  considerable  period  con- 
tinues to  rise  one  will  find  very  few  business 
men  who  are  able  to  keep  their  heads  and  to 
remember  that  a  day  of  reckoning  is  inevitable. 
Almost  without  exception  they  will  cast  aside 
the  principles  upon  which  they  built  business 
and  engage  in  a  mad  scramble  of  speculation. 
We  went  through  such  a  period  following  the 
war. 

Business  economics  were  thrown  aside.  Sug- 
gestions or  rules  for  financing  a  mixture  of 
business  and  speculation  are  not  more  useful 
than  rules  for  beating  roulette  wheels.  The 
way  to  finance  speculation  is  to  borrow  all  the 
money  you  can  and  keep  on  borrowing  as  long 
as  you  can.  If,  during  the  progress  of  the 
borrowing,  you  can  sell  your  goods,  then  you 
can  pay  off  your  notes.  If  you  cannot  get  rid 
of  your  goods  and  the  banks  refuse  to  renew 
the  notes,  then  the  approved  course  is  to  au- 
thorize an  increase  of  capital  stock  and  try  to 
work  that  off  on  somebody.  If  there  are  not 
enough  fools  around  to  buy  your  stock  certifi- 
cates and  nobody  will  take  the  goods  off  your 
hands,  why  then  you  are  what  is  termed  unfor- 
tunate, and  you  fail.  If,  in  addition  to  being  a 

182 


The  Use  of  Money  in  Business 

speculator,  you  are  also  blessed  with  a  benevo- 
lent disposition,  you  will  gracefully  try  to  get 
your  employees  in  on  the  stock  subscription. 
This  latter  form  of  benevolence  has  not  been 
wholly  overlooked. 

In  the  inevitable  depression  that  follows  a 
period  of  undue  prosperity  and  speculation, 
the  over-extended  speculators  usually  fail.  The 
survivors  gather  to  learn  what  business  is  and 
to  study  the  use  of  money  in  business  instead 
of  in  speculation.  But  so  deeply  ingrained  is 
the  thought  that  business  somehow  depends 
upon  money  instead  of  money  upon  business 
that  a  deal  of  unnecessary  attention  is  still  de- 
voted to  getting  money — when  money  is  not  to 
be  had. 

For  instance,  I  found  one  large  company 
badly  in  need  of  money — so  it  thought.  But 
an  investigation  and  study  of  their  situation 
made  it  appear  that  what  they  needed  was 
more  method  in  the  shop  and  less  activity  in 
the  banking  department.  They  had  a  goods-in- 
process  inventory  of  $4,000,000;  half -finished 
goods  were  everywhere  in  nooks  and  corners 
waiting  for  some  department  of  the  factory  to 
turn  out  the  missing  parts.  A  thorough  revi- 
sion and  planning  of  their  schedule  of  output 
and  a  coordination  of  their  plant  cut  down  the 

183 


The  Organization  of  Modern  Business 

inventory  to  $1,000,000.  They  borrowed  all  the 
money  they  needed  right  from  themselves  not 
only  without  interest  but  with  a  premium  in 
addition  in  the  way  of  lessening  their  costs  of 
production !  They  had  been  giving  their  atten- 
tion to  finance  instead  of  to  manufacturing. 
They  had  held  with  so  many  others  to  that 
compressed  bit  of  unwisdom  which  is  ex- 
pressed in: 

" Money  makes  the  wheels  go  round." 
Does  it?  And  what  of  it  if  it  does!  That 
is  not  business.  Business  is  not  simply  the 
stimulation  of  the  motion  of  wheels ;  it  is  a  re- 
sult of  the  motion  of  wheels.  The  wheels  going 
round  make  money.  It  is  only  in  the  unsuc- 
cessful business  enterprise  that  money  makes 
the  wheels  gD  round — or,  putting  the  whole  less 
cryptically,  we  may  go  into  business  because 
we  have  money  (and  undoubtedly  we  need 
money  before  we  can  go  into  business),  but  we 
cannot  stay  in  anything  that  may  properly  be 
described  as  business  unless  money  results 
from  our  operations. 

The  whole  thought  of  business  enterprise  is 
clouded  by  failing  to  grasp  the  real  part  that 
money  plays.  We  get  to  thinking  in  terms  of 
dollars  instead  of  in  terms  of  goods.  Manu- 
facturing is  only  a  process  of  converting  goods. 

184 


The  Use  of  Money  in  Business 

At  one  end  of  the  shop  we  take  in  raw  mate- 
rial, add  to  it  labor  either  in  the  form  of  hand- 
work or  in  the  form  of  machine  work,  which  is 
only  the  previously  accumulated  hand  work, 
and  then  turn  out  at  the  other  end  of  the  shop, 
our  raw  material  plus  all  of  this  labor  and  try 
to  make  an  advantageous  exchange  of  this, 
which  we  call  our  product,  for  more  raw  mate- 
rial, and  for  food,  fuel,  clothing  and  housing, 
to  recompense  ourselves  and  those  who  have 
labored  with  us  in  the  transformation  of  the 
raw  into  finished  material. 

Because  the  direct  exchange  of  what  we  make 
for  what  we  need  is  quite  too  cumbersome  a 
process,  we  use,  instead  of  the  goods  them- 
selves, accepted  exchange  equivalents  which  we 
think  of  as  money  and  which  are  expressed  in 
terms  of  money  but  which,  as  a  rule,  are  in 
the  form  of  credit  instruments — the  bank  notes 
of  governments,  or  the  promises  to  pay  of  in- 
dividual institutions. 

If  we  kept  strictly  to  the  practise  of  ex- 
changing goods  for  goods,  a  proprietor  and  his 
workmen  would  not  eat  until  the  goods  they 
made  had  been  exchanged,  unless  at  some  pre- 
vious time  the  proprietor  had  exchanged  his 
product  for  enough  food  to  build  up  a  surplus 
to  tide  over  the  next  trading  period.  In  such 

185 


The  Organization  of  Modern  Business 

case  he  would  not  need  any  elaborate  account- 
ing to  discover  whether  or  not  he  was  conduct- 
ing business  at  a  profit.  His  stomach  and  the 
stomachs  of  his  workers  would  give  a  quick 
and  accurate  statement  of  business  condition. 
The  business  man  would  be  in  exactly  the  same 
position  as  the  Indian  trapper  who  brings  his 
pelts  to  the  trader  and  receives  return  in  kind, 
or  of  the  small  cotton  grower  who  exchanges 
his  cotton  with  the  local  storekeeper  for  such 
of  the  necessities  of  life  as  he  cannot  produce 
on  his  own  farm. 

Instead  of  this  seemingly  simple,  but  ac- 
tually rather  complex,  process  of  trade,  we  first 
substituted  the  more  convenient  medium  of 
money,  but  finding  even  that  less  arduous 
method  of  actual  exchange  of  goods  for  goods 
too  awkward,  we  have  practically  substituted 
credit  in  many  forms,  and  it  is  the  management 
of  this  money  and  credit  which  created  that 
department  of  business  which  we  term  finance. 

Finance,  then,  is  not  that  which  causes  busi- 
ness but  is  only  the  management  of  the  value 
representations  of  the  various  goods  and  serv- 
ices that  go  to  make  up  business.  This  is  sim- 
ple, elementary  economics — so  simple  and  so 
elementary,  indeed,  that  it  would  be  unneces- 
sary to  set  it  forth  as  a  background  of  finance 

186 


The  Use  of  Money  in  Business 

were  it  not  that  we  have  fallen  into  the  habit 
of  approaching  business  with  the  thought  up- 
permost that  it  is  money  that  makes  the  wheels 
go  round.  Then  we  quickly  lose  ourselves  in 
a  technical  maze  of  financial  principles  ex- 
pressed in  financial  jargon.  One  can  be  an  ex- 
tremely good  business  man  without  knowing 
the  difference  between  a  promissory  note  and  a 
trade  acceptance,  or  between  a  bond  and  a 
debenture,  or  between  a  bank  and  a  trust  com- 
pany, or  even  between  a  bill  of  exchange  and  a 
check,  or  between  a  gold  brick  and  a  gilded 
brick.  It  is  true  that  a  capable  business  man 
whose  mind  was  blank  on  these  subjects  might 
have  not  a  little  difficulty  in  retaining  the  re- 
sults of  his  business  capability,  but  most  peo- 
ple have  difficulty  in  doing  that  anyway  and  I 
am  not  sure  that  the  man  who  is  successful  in 
business  without  the  slightest  knowledge  of 
finance  as  applied  to  other  than  his  own  im- 
mediate concerns  is  not  safer  with  his  pile  than 
is  the  equally  successful  business  man  who  sets 
up  later  as  a  financier. 

One  of  my  friends  who  is  a  lawyer  asserts 
that  a  great  boom  would  come  to  the  legal  pro- 
fession if  only  a  book  instructing  every  man  on 
how  to  be  his  own  lawyer  would  be  widely  cir- 
culated, for  then  a  resurgent  passion  to  dabble 

187 


The  Organization  of  Modern  Business 

in  the  law  would  arise  and  instead  of  simple 
and  inexpensive  cases  the  lawyers  would  have 
great  and  complex  ones. 

Because  of  this  wrong  approach,  of  this  no- 
tion that  it  is  money  that  makes  the  wheels 
go  round,  we  find  that  those  who  have  acquired 
a  reputation  for  financial  acumen  in  business 
get  it  as  a  rule  because  of  a  certain  skill  in 
borrowing  money,  which  connotes  an  acquaint- 
ance with  bankers  and  banking  methods. 
These  are  valuable  additions  to  the  mental 
equipment  of  any  man  in  business,  but  too 
marked  a  proficiency  is  apt  to  be  evidence — • 
as  uncanny  skill  with  a  billiard  cue  is  evidence 
of  a  misspent  youth — of  a  misspent  business 
life. 

Any  man  with  a  pleasing  personality,  a 
knowledge  of  bankers  and  banking  conditions, 
and  a  certain  deftness  in  the  formation  of 
financial  statements,  can  borrow  money.  If  he 
extends  his  acquaintance  among  bankers  he  can 
borrow  to  meet  his  borrowings  and  thus  ac- 
quire tne  essential  reputation  of  meeting  his 
notes.  And  he  can  do  all  of  this  honestly,  for 
it  is  easy  to  persuade  oneself  that  every  cent 
borrowed  will  in  time  be  returned.  And  then 
quickly  and  insensibly,  one  may  be  caught  in 
the  endless  chain  system  of  finance.  This  is  a 

188 


The  Use  of  Money  in  Business 

soul-racking  method  of  prolonging  "business  life 
and  depends  solely  upon  heing  able  to  borrow 
increasingly  large  amounts  of  money.  It  is  the 
certain  road  to  ruin  and  only  rendered  more 
certain  by  the  occasional  earning  of  large 
profits  that  enable  the  over-extended  margin  of 
indebtedness  to  be  cleared  up.  While  borrow- 
ing to  pay  off  former  loans  is  at  times  inevi- 
table, its  necessity  is  always  carefully  to  be 
analyzed.  Adopting  the  Ponzi  financial  system 
is  easier  than  one  imagines.  Not  a  few  people 
have  made  comfortable  livings  out  of  borrow- 
ing money;  but  do  not  let  us  confuse  respect- 
able panhandling  with  business  borrowing  and 
do  not  let  us  get  business  borrowing  out  of  its 
really  very  subordinate  position  in  truly  pro- 
ductive activity. 

Business  is  not  founded  on  financial  dexter- 
ity; it  is  founded  solely  on  the  management  of 
production  or  merchandising.  If  you  call  the 
roll  of  the  great  business  men  of  the  country 
you  will  not  discover  one  who  is,  or  was,  pre- 
eminently a  financier.  They  are  superlatively 
skilful  in  either  production  or  merchandising 
—never  in  finance.  I  do  not  recall  a  single 
business  institution  that  was  built  by  a  finan- 
cier. A.  T.  Stewart,  Marshall  Field,  and  John 
Wanamaker  built  as  merchandisers-  P.  D. 

189 


The  Organization  of  Modern  Business 

Armour  based  his  success  on  being  able  to  get 
more  out  of  a  hog  than  the  hog's  anatomy  could 
reasonably  be  expected  to  deliver;  Carnegie 
was  a  maker  of  steel  and  a  manager  of  men — 
so  is  Schwab;  Gary  is  a  manager  of  corpora- 
tions; Ford  is  a  maker  of  automobiles,  and  so 
on  through  the  list.  J.  P.  Morgan,  who  or- 
ganized more  corporations  than  any  other  man 
in  the  country,  would  never  under  any  circum- 
stances put  a  financier  at  the  head  either  of  a 
railroad  or  an  industrial  enterprise. 

Money  does  not  produce  goods;  goods  pro- 
duce money.  The  process  of  finance  is,  then, 
merely  to  see  that  enough  money  is  produced 
through  the  exchange  of  the  articles  manufac- 
tured to  pay  for  the  purchase  of  new  raw  ma- 
terials, labor,  and  depreciation  of  plant  with 
enough  over — that  is,  enough  profit — properly 
to  recompense  those  who  initially  ventured 
their  money. 

We  have  two  general  divisions  of  money  in 
business — that  which  represents  capital — the 
means  of  production,  and  that  which  represents 
goods  in  process.  It  is  only  as  we  confuse 
these  two  classes  of  money  and  confuse  their 
relations  to  what  we  are  doing  that  we  get  into 
financial  trouble. 

The  part  of  the  capital  which  is  represented 
190 


The  Use  of  Money  in  Business 

by  the  means  of  production  is  commonly 
termed  the  fixed  capital,  while  that  which  is 
involved  in  the  goods  in  process  is  the  working 
capital.  The  line  between  the  two  is  not  dis- 
tinctly marked  and  their  functions  are  so  inter- 
dependent that  neither  is  worth  much  without 
the  other. 

It  has  been  the  practise  in  the  past  to  regard 
the  fixed  capital  and  a  portion  of  the  working 
capital  as  the  stake  of  the  owners  and  then  to 
go  out  and  borrow  in  a  temporary  way  the  ad- 
ditional working  capital  that  may  from  time  to 
time  be  needed,  and  it  has  been  considered  con- 
servative, legitimate  business  management  to 
borrow  money  whenever  that  borrowing  will 
result  in  the  production  of  goods  that  will  turn 
into  money  and  pay  off  the  borrowing. 

Take  first  the  fixed  capital.  We  are  not  con- 
cerned here  with  the  legal  organization  or  the 
nature  of  the  instruments  that  the  contributors 
of  the  initial  capital  get  in  return  for  their 
money  except  to  point  out  that  mortgage  bonds 
or  any  form  of  obligation  which  puts  a  lien 
upon  the  property  of  the  company  and  fixed 
charge  upon  the  earnings  are  extremely  dan- 
gerous. 

The  safety  of  a  mortgage  upon  an  industrial 
corporation  has  been  overestimated;  the  in- 

191 


The  Organization  of  Modern  Business 

vestor  should  want  earning  power — not  some- 
thing he  can  sell.  He  does  want  earning  power, 
but  a  mortgage  often,  in  the  early  years,  de- 
stroys the  chance  to  obtain  earning  power,  and 
so  the  investor  gets  only  an  opportunity  to 
join  in  a  reorganization. 

A  well-equipped  manufacturing  plant  should 
be  so  special  in  its  construction  that  it  will 
have  little  or  no  value  when  sold  at  a  forced 
sale.  If  it  is  large  it  cannot  be  sold  anyway. 
It  really  has  to  be  reorganized  and  the  bond- 
holder must  get,  of  the  securities  issued  in  the 
reorganization,  somewhat  less  than  he  held  in 
the  first  place.  The  best  financial  plan  is  that 
which  involves  only  common  stock  of  no  par 
value ;  the  next  best  plan,  and  the  one,  for  sales 
reasons,  which  is  commonly  adopted  is  to  issue 
preferred  stock,  with  or  without  a  convertible 
feature  and  sell  a  certain  amount  of  common 
stock  in  the  same  package. 

But  with  this  side  of  finance  I  am  not  con- 
cerned. The  amount  of  the  fixed  capital — the 
amount  of  the  total  resource — which  is  invested 
in  assets  that  have  to  do  with  production  is  the 
paramount  concern.  The  plant  has  to  be 
profitable  and  it  cannot  be  unless  it  is  fitted  to 
its  work.  Its  fitness  is  not  to  be  arrived  at  by 
guessing.  The  factory  itself  will  be  built  to 

192 


The  Use  of  Money  in  Business 

obtain  a  certain  planned  output  in  the  most 
economical  fashion.  The  plan  will  contemplate 
increases  in  productive  capacity  with  the  in- 
crease in  market  and  these  additions  will  go 
on  as  complete  units — not  in  haphazard 
fashion. 

The  cost  of  plant  will,  therefore,  have  a  di- 
rect ratio  to  planned  sales ;  the  sales  necessary 
to  operate  the  first  unit  to  capacity  will  be 
known  and  additional  units  will  be  added  only 
as  orders  over  a  considerable  period  give  a  fair 
certainty  that  the  additional  demand  will  be 
stable.  It  is  hard  to  turn  down  orders  in  boom 
times  especially  when  prices  are  high,  but  the 
wise  financier  will  not  extend  his  plant  to  meet 
emergency  orders.  Good  manufacturing  de- 
pends upon  continuous  capacity  output — upon 
being  busy  in  so-called  dull  times.  Adding 
capacity  to  take  care  of  the  order  peak  means 
that  normally  the  plant  will  not  be  running  at 
capacity  and  hence  will  not  operate  with  the 
planned  economy  and  at  the  planned  costs. 
After  every  boom  period  we  see  magnificent 
plants  that  cannot  produce  cheaply  enough  to 
find  large  markets  simply  because  of  the  heavy 
fixed  charges  for  idle  plant.  Or  if  the  idle  por- 
tion of  the  plant  is  not  charged  into  the  over- 
head it  has  to  be  taken  out  of  the  profits  made 

193 


The  Organization  of  Modern  Business 

by  that  portion  which  is  working  with  the  re- 
sult that  profits  are  depleted  to  the  vanishing 
point. 

I  am  not  advocating  a  cheap  plant — I  am 
urging  the  kind  of  plant  that  can  turn  out 
goods  with  the  minimum  of  cost — the  even- 
tually, not  the  initially,  cheapest  plant.  We 
base  a  new  plant  on  the  work  it  is  to  do — it  is 
a  tool  and  we  need  just  the  right  size  of  tool 
and  no  other.  We  are  setting  out  to  do  a  cer- 
tain job — to  make  a  certain  amount  of  product, 
and  we  expect  to  make  it  so  well  and  at  such 
a  price  that  it  can  be  sold.  The  amount  that  it 
will  cost  to  buy  that  exact  tool  is  hence  known 
to  us  in  advance  and  that  will  be  the  amount  of 
capital  that  will  have  to  go  into  the  fixed  divi- 
sion. 

In  the  old  plant  the  general  rule  holds- 
transform  it  into  a  tool  for  the  work  that  it 
must  do.  Any  plant  that  has  not  been  scien- 
tifically designed,  or  in  which  the  work  and 
methods  are  not  planned  and  the  labor  is  not 
coordinated,  can  commonly  be  increased  from 
25%  to  50%  or  more  in  capacity  by  the  adop- 
tion of  modern  methods  of  routed  work  and  in- 
structed labor.  I  have  assisted  in  cases  where 
we  have  taken  an  old  plant,  rearranged  the  ma- 
chinery, then  installed  a  planning  board,  prop- 

194 


The  Use  of  Money  in  Business 

erly  instructed  the  employees,  and  have  not 
only  decreased  the  cost  and  increased  the 
volume  of  production  but  have  been  able  also 
to  lease  part  of  the  property  that  was  formerly 
thought  wholly  essential.  This  gained  an  out- 
side revenue  which  considerably  decreased  the 
burden  of  the  overhead  expense. 

The  point  is  to  get  everything  into  the  plant 
that  will  lessen  the  expense  of  production  and 
to  get  everything  out  that  tends  in  any  other 
direction.  In  short,  the  amount  of  capital  to 
be  tied  up  in  plant  and  machinery  is  first  of  all 
an  engineering  and  sales  affair  and  only  sec- 
ondly a  question  of  finance.  If  one  has  not  the 
money  to  do  the  job  as  it  should  be  done  then 
the  decision  has  to  be  made  as  to  whether  or 
not  a  compromise  is  worth  while.  The  horse 
may  pull  through  even  if  lame,  but  a  wise 
driver  rarely  starts  on  a  long  trip  with  a  lame 
horse. 

Now  we  have  decided  on  a  certain  volume  of 
output.  The  tools  to  fabricate  that  output  will 
cost  an  amount  we  have  ascertained.  The  next 
point  is  to  determine  how  much  money  it  will 
take  to  send  the  materials  through  our  course 
of  fabrication — that  is,  how  much  money  it  will 
take  to  buy  the  various  kinds  of  raw  or  semi- 
finished material  that  enter  into  our  product, 

195 


The  Organization  of  Modern  Business 

to  pay  the  wages  of  labor  in  the  making,  to 
pay  all  other  charges,  and  to  keep  on  paying 
until  the  customers  to  whom  we  have  sold  have 
paid  their  bills.  This  makes  necessary  a  con- 
siderable number  of  important  decisions.  We 
will  have  to  know  what  credit  will  be  extended 
to  us  in  buying  and  what  credit  we  shall  extend 
in  selling. 

Picturing  the  production  of  the  factory  as  a 
wheel,  a  single  revolution  of  which  represents 
a  day's  output,  we  shall  have  to  determine  how 
many  revolutions  of  that  wheel  will  take  place 
before  we  begin  to  be  paid  for  what  we  do.  We 
shall  have  to  advertise,  pay  salesmen,  and  incur 
many  and  various  sorts  of  expenses  before, 
under  the  most  favorable  circumstances,  we  can 
expect  to  earn  a  profit.  All  of  these  expenses 
may  be  tabulated,  they  may  be  put  into  a 
budget  and  their  sum  will  determine  the  mini- 
mum amount  of  working  capital. 

If  the  product  and  all  of  its  processes  of  sale 
and  distribution  have  been  scientifically  worked 
out  the  chances  are  that  the  company  will  make 
money,  but  just  as  a  salaried  individual  is  not 
to  be  considered  in  good  circumstances  until  he 
has  enough  money  in  reserve  to  support  him- 
self for  a  year  without  working,  so  a  company 
beginning  business  should  be  in  a  position  to 

196 


The  Use  of  Money  in  Business 

call  upon  enough  money  to  keep  itself  going 
through  at  least  a  year  without  making  money. 
Although  it  is  presumed  that  all  of  the  plans 
will  have  been  worked  out  with  a  maximum  of 
human  skill,  that  does  not  of  itself  absolutely 
guarantee  success.  One  must  be  prepared 
against  contingencies  and  be  prepared  to  meet 
these  contingencies  not  by  borrowing  but  by 
the  acquisition  of  additional  capital. 

We  can  borrow  to  finance  operations  but  bor- 
rowing to  meet  depletions  of  capital  or  for  any 
capital  purpose  holds  within  itself  the  highest 
danger;  for  we  may  thereby  begin  that  end- 
less chain  system  of  finance  that  must  end  in 
absolute  ruin. 

I  have  given  no  figures  as  to  the  relative  size 
of  the  fixed  and  the  working  capital,  and  it  must 
be  apparent  that  to  settle  upon  any  such  arbi- 
trary figures  is  only  to  assert  that  the  business 
has  not  been  previously  planned  and  that  its 
most  important  factors  are  being  left  to  guess- 
work. Neither  have  I  dealt  with  the  borrowing 
policy  because  that  is  really  a  question  of  plan- 
ning— not  of  finance.  Neither  have  I  taken  up 
the  case  of  the  older  corporation  that  finds 
itself  in  financial  difficulties.  The  arrangement 
of  its  finances  does  not  in  the  least  differ  from 
that  of  a  corporation  starting  in  business.  And 

197 


The  Organization  of  Modern  Business 

finally  I  have  offered  no  suggestion  as  to  how 
to  get  along  without  money  for  the  excellent 
reason  that  there  is  no  such  method — that  is  a 
question  of  individual  genius. 

The  whole  point  that  I  want  to  make  is  that 
the  management  of  finance  is  a  question  sub- 
sequent to  and  not  precedent  to  the  manage- 
ment of  production. 


198 


CHAPTER  X 

.     PUTTING  A  BUSINESS   IN   BALANCE 

A  SCIENTIFICALLY  planned  and  scientifically 
managed  production  department  may  do  to  a 
manufacturing  concern  exactly  what  a  big, 
modern  locomotive  would  do  to  a  railroad 
equipped  with  60-pound  rails.  We  have  about 
us  a  number  of  perfectly  apposite  examples. 
We  have  seen  a  number  of  large  manufactur- 
ing corporations  wrecked,  or  all  but  wrecked, 
by  the  pounding  of  the  powerful  productive 
engine  that  they  installed.  We  would  not  think 
of  sending  out  a  high-powered  racing  car  with 
only  a  child  at  the  wheel;  but  we  are  content 
to  let  loose  a  high-powered  factory  under 
equally  inexperienced  guidance. 

During  the  period  when  production  was 
pressing,  many  companies  organized  their 
manufacturing  facilities  to  a  high  scientific 
degree — and  made  no  provision  at  all  for  the 
larger  management.  They  thought  the  whole 
of  manufacturing  was  production.  They 
started  production  going  but  made  no  plan 

199 


The  Organization  of  Modern  Business 

either  to  sell  or  to  finance  the  goods  as  made. 
They  could  run  the  machine  on  the  straight- 
away, but  they  did  not  know  how  to  make  a 
turn.  The  sales  fell  off — that  is,  a  turn  loomed 
in  the  road.  They  did  not  know  how  to  take 
that  turn,  and,  of  course,  they  crashed  through 
the  fence. 

Here  is  a  typical  case:  A  number  of  rather 
prosperous  manufacturing  companies  were 
brought  into  a  combination  by  a  moderately 
bright  young  man  whose  sole  training  had  been 
as  a  salesman  in  a  boom  market.  He  had  some 
money  of  his  own  and  excellent  family  connec- 
tions. He  had  never  had  the  slightest  experi- 
ence in  factory  management  or  in  corporate 
management,  and  his  sales  managerial  experi- 
ence had  been  confined  to  the  direction  of 
order  takers.  He  put  through  the  consolida- 
tion with  himself  as  president.  Then  he  hired 
— for  every  one  of  the  companies  was  far  back 
in  its  orders — one  of  the  best  production  engi- 
neers in  this  country.  He  told  the  engineer 
that  above  all  he  must  have  a  maximum  out- 
put. On  the  books  of  the  companies  were 
orders  for  two  years  ahead. 

The  production  engineer  overhauled  all  of 
the  factory  methods,  planned  a  schedule  of 
production  which  increased  the  output  by 

200 


Putting  a  Business  in  Balance 

nearly  a  half,  and  began  the  erection  of  a  big, 
new,  and  expensive  factory.  The  engineer  was 
not  consulted  concerning  finance.  Nobody 
bothered  about  finance.  The  orders  were  on 
the  books  and  they  sold  cash  on  delivery.  So 
apparently  there  was  no  financial  problem. 
Also  with  orders  so  far  ahead  there  was  no 
sales  problem.  The  .salesmen  were,  it  is  true, 
retained,  and  when  not  occupied  with  their  so- 
cial engagements,  passed  their  spare  time  in 
receiving  new  orders  and  making  excuses  for 
the  unfulfilment  of  old  orders. 

Then  came  the  " consumers'  strike. "  Instead 
of  new  orders  the  company's  dealers  began  to 
get  cancelations.  The  company  insisted  that 
its  dealers  should  take  allotments  regardless  of 
cancelatioi/s.  The  production  engine  worked 
swiftly  and  smoothly,  and  the  dealers  were 
filled  to  the  brim  as  neatly  and  as  quickly  as 
though  they  had  been  bottles  passing  through 
an  automatic  filling  machine.  Then  they  could 
take  no  more. 

The  president  did  not  know  what  to  do.  He 
had  never  thought  of  anything  like  this  hap- 
pening. He  reassured  himself  that  the  public 
would  be  back  to  buy.  The  salesmen  likewise 
reassured  themselves.  Nobody  did  anything 
excepting  reassure  himself.  The  vice-president 

201 


The  Organization  of  Modern  Business 

in  charge  of  production  was  there  to  get  pro- 
duction and  not  to  sell.  He  kept  right  on  get- 
ting production  and  by  the  time  the  sales  and 
financial  executives  had  finished  reassuring 
themselves  a  tremendous  finished  inventory 
was  on  hand,  a  tremendous  parts  inventory  was 
on  the  way,  and  the  banks  and  supply  men  were 
calling  for  money.  Of  course  there  was  noth- 
ing to  do  but  shut  down  and  turn  the  company 
over  to  an  informal  creditor's  committee. 

The  company  had  planned  its  production  for 
a  hungry  market  and  it  had  no  plans  whatso- 
ever once  the  market  changed.  It  had  not  been 
planned  as  a  business — only  as  a  goods  pro- 
ducer. That  is  only  one  out  of  a  dozen  or  twenty 
similar  cases  and  I  give  it  only  to  emphasize 
that  business  does  not  consist  solely  of  produc- 
tion, and  that  planning  does  not  mean  only  an 
arrangement  of  charts,  boards,  and  schedules 
in  the  manufacturing  department. 

Through  the  war  years  we  specialized  in  pro- 
duction. First  the  war  orders  and  then  the 
peace  orders  demanded  such  quantities  of 
goods  that  manufacturing  became  solely  a 
question  of  getting  goods  through  the  factory. 
The  sales  department  had  practically  nothing 
to  do.  The  financial  department,  whenever 
money  was  needed,  had  only  to  go  to  the  bank 

202 


Putting  a  Business  in  Balance 

and  get  it.  The  term  "scientific  management" 
was  restricted  solely  to  shop  management. 

The  usual  course  of  a  proprietor  was,  when 
he  found  his  orders  running  far  ahead  of 
schedule,  to  call  a  meeting  of  his  executives 
and  as  a  result  hang  up  prizes  to  the  workmen 
for  production.  Usually  he  got  increased  pro- 
duction over  a  week  or  two ;  then  inevitably  he 
got  a  reaction,  because  whenever  a  worker 
spurts  he  must  afterwards  take  a  breathing 
spell.  While  the  reaction  was  on,  the  pro- 
prietor, in  despair,  sent  for  the  production  en- 
gineer as  he  would  have  sent  for  a  doctor.  He 
asked  the  engineer  for  more  output.  He  en- 
gaged him  for  this  single  task  and  if  the  engi- 
neer were  professional  enough  to  suggest  that 
the  factory  was  only  one  part  of  a  scientifically 
balanced  business,  the  proprietor  quickly  put 
that  engineer  in  his  place.  So  it  happened  that 
many  high-production  units  have  been  built  ap 
and  delivered  into  the  hands  of  men  who  had 
no  idea  at  all  as  to  how  these  great  engines 
should  be  regulated  and  controlled. 

One  heard  that  production  was  the  goal — 
that  the  object  of  business  was  to  produce 
goods.  We  had  a  lot  of  such  talk.  Then  all  at 
once  this  was  replaced  by  talk  of  "over- 
production. ' '  Now  it  is  often  stated  with  great 

203 


The  Organization  of  Modern  Business 

confidence  that  too  much  stress  has  been  laid 
upon  production  and  that,  in  consequence,  the 
productive  capacity  of  the  United  States  had 
grown  far  beyond  the  consumptive  needs  of  the 
people.  Therefore  we  may  expect  at  the  most 
to  be  able  to  run  our  plants  through  not  more 
than  three-quarters  of  any  year  for  domestic 
consumption,  and,  unless  foreign  trade  be 
largely  built  up,  industry,  together  with  its 
managers  and  workers,  must  expect  to  live  on 
short  rations. 

Production  is  not  of  itself  the  entirety  of 
business.  The  United  States  can  readily  ab- 
sorb all  that  it  rightly  produces.  It  is  not  wise 
to  absorb  all — but  that  is  another  matter. 

We  can  regard  production  as  the  sole  end  of 
business  and  with  ease  over-produce.  Also  we 
can  take  a  No.  G  shoe  and  after  vainly  trying 
to  put  it  on  a  No.  12  foot  can  announce  con- 
fidently that  shoes  are  not  made  for  feet.  Busi- 
ness is  founded  on  production  but  a  house  is 
not  built  when  only  its  foundation  has  been, 
laid.  A  business  which  has  developed  only  its 
production — that  is,  has  acquired  only  the 
ability  to  get  goods  out  of  the  front  door,  re- 
gardless of  price,  is  no  more  to  be  regarded  as 
a  business  than  is  a  foundation  to  be  regarded 

204 


Putting  a  Business  in  Balance 

as  a  house.  Indeed,  such  a  business  is  as  much 
a  menace  to  the  community  as  is  an  open,  un- 
guarded foundation.  Production  is  the  begin- 
ning and  not  the  end  of  business.  It  has  not 
been  unduly  emphasized.  It  has  not  been  em- 
phasized enough.  And  the  other  equally  im- 
portant parts  of  a  business  machine  have  com- 
monly been,  as  is  natural  in  a  rising  market, 
not  emphasized  at  all.  We  have  had  produc- 
tion for  itself  instead  of  as  part  of  a  well- 
ordered  plan  of  operation. 

The  end  of  planning  is  not  the  installation  of 
chaste,  metal  fixtures  filled  with  neatly  lettered 
cards.  The  end  of  planning  is  so  to  shape  the 
manufacturing,  selling,  and  financial  portions 
of  a  business  that  all  will  function  perfectly 
together,  and  the  business  cycle  of  that  par- 
ticular institution  revolve  with  sweeping  grace. 

An  unplanned  business  may  be  said  to  lack 
orchestration.  No  matter  how  individually 
skilled  the  members  of  an  orchestra  may  be, 
their  efforts  will  go  to  make  business  only  for 
the  undertaker  unless  some  one  has  reasonably 
adapted  the  score  to  the  instruments.  Other- 
wise they  will  not  make  music  but  only  a  fright- 
ful noise. 

But  what  is  the  use  of  talking  about  business 

205 


The  Organization  of  Modern  Business 

as  though  it  were  grand  opera,  or  even  as 
though  it  were  comic  opera,  when  the  plain  fact 
sticks  out  that  every  now  and  again  people  will 
not  buy?  What  is  the  use  of  having  all  the 
instruments  in  perfect  harmony  if  no  one  will 
pay  money  to  hear  their  sweet  sonance  I  Who, 
under  these  circumstances,  will  pay  the  pipers? 
Why  get  so  much  dressed  up  without  any  place 
to  go? 

It  is  taken  as  a  fact  that  demand  and  supply 
ebb  and  flow  unceasingly,  that  what  are  called 
"business  conditions "  are  as  inviolate  as  the 
seasons,  that  we  can  never  make  our  conditions 
but  must  always  accept  them  as  they  are  given 
to  us.  That  is  the  usual  view  notwithstanding 
the  fact  that  irrigation  has  disturbed  the  reign 
of  the  cactus  in  the  Southwest,  that  Burbank 
induced  oranges  to  bunch  their  seeds,  that 
lovely  colors  can  be  gotten  out  of  messy  coal 
tar,  and  that  the  people  of  the  United  States 
accepted  the  Eighteenth  Amendment.  Civiliza- 
tion consists  in  man-handling  rather  than  pan- 
handling nature.  Therefore,  although  it  is  not 
desirable  to  play  tricks  with  the  law  of  supply 
and  demand  (which  is  the  usual  way  of  attack- 
ing the  problem  of  business  continuity),  it  is 
perfectly  possible,  although  not  to  be  done  in 
one  night  and  without  quite  a  little  thought, 

206 


Putting  a  Business  in  Balance 

to  plan  one's  business  so  that  it  will  furnish 
the  supply  and  make  the  demand. 

Supply  never  exceeds  demand.  If,  for  in- 
stance, the  South  has  a  bad  cotton  year  the 
residents  of  the  cotton  states  will  not  buy  many 
shoes.  Their  turning  away  from  the  purchase 
of  new  footwear  is  not  due  to  any  sudden 
hardening  of  the  feet  making  the  use  of  a 
leather  covering  unnecessary.  They  do  not 
buy  shoes  simply  because  they  have  not  the 
money  to  buy  them.  And  so  it  is  with  every- 
thing. It  is  not  the  demand  that  ceases;  it  is 
that  the  supply  has  gotten  too  high-priced  for 
the  demand.  The  seller  of  shoes,  the  maker, 
the  workers  with  him,  the  tanners,  the  dealers 
in  raw  hides — in  fact  everybody  involved — in- 
sensibly, perhaps,  forgets  his  own  proper  con- 
tribution of  service  to  the  eventual  result  and 
tries  to  find  out  what  a  man  will  pay  for  shoes. 
Prices  advance  all  along  the  line  and  they  keep 
right  on  advancing  until  the  consumers,  at  first 
individually,  and  then  collectively,  find  that  the 
prices  being  asked  are  more  than  their  pocket- 
books  care  to  pay.  The  supply  for  a  time  con- 
tinues. We  then  have  an  over-supply  and  a 
period  of  restricted  production.  Finally,  after 
much  wailing,  the  whole  machinery  of  price 
advance  goes  into  reverse  gear  and  creakingly, 

207 


The  Organization  of  Modern  Business 

with  showers  of  sparks  and  a  considerable 
breaking  of  cogs  and  snapping  of  belts,  the 
whole  thing  backs  down  the  hill. 

It  is  the  part  of  management  to  manage.  It 
is  the  part  of  science  to  overcome  difficulties. 
Anybody  can  accept  things  as  they  are.  Un- 
scientific business — that  is,  unplanned  business 
— accepts  things  as  they  are.  The  unscientific 
business  man  accepts  good  times  with  perhaps 
a  tendency  to  give  full  credit  to  himself  for 
bringing  them  on,  but  anyhow  he  is  glad.  Also 
and  eventually  he  accepts  bad  times  as  an  ex- 
cuse for  lack  of  forethought  and  he  is  sorry. 
The  banking  thought,  for  instance,  places  a 
great  deal  of  dependence  upon  conditions;  and 
business  men  are,  and  really  have  to  be,  con- 
siderably influenced  by  their  banking  connec- 
tions. A  banker  is  in  the  way  of  being  a  pho- 
tographer who  cannot  arrange  the  position  of 
the  sitter.  He  cannot  properly  be  constructive. 
He  is  a  snapshot  maker — an  appraiser. 

The  banker  bases  his  views  largely  upon  the 
state  of  the  raw  commodity  market.  Until 
quite  recently  bankers  really  knew  only  raw 
materials,  and  the  bulk  of  the  commercial  paper 
that  even  now  is  offered  is  founded  upon  trad- 
ing in  raw  or  semi-finished  material.  Raw  ma- 
terial fluctuates  in  price  and  it  is  not  desirable 

208 


Putting  a  Business  in  Balance 

to  attempt  to  control  prices,  for  any  workable 
control  has  to  be  based  upon  the  expenses  of 
the  highest  cost  producer.  That  is  the  objec- 
tion to  monopoly.  A  monopoly  is  not  wrong 
in  itself  but  it  always  tends  to  decreasing  pro- 
duction because  it  arrests  the  progress  of  in- 
genuity by  saying  definitely,  "This  is  cost  and 
this  is  price,  and  thus  they  shall  forever  re- 
main." 

For  instance,  salt  was  once  rather  generally 
monopolized  in  Europe  and  therefore  salt  was 
low  in  quality  and  high  in  price.  A  monopoly 
is  anti-social  in  that  it  retards  progress  and 
is  therefore  self-destructive.  Where  a  common 
raw  product  can  have  a  locality  specialization 
then  prices  may  be  intelligently  and  remun- 
eratively controlled  to  the  benefit  of  both  the 
producer  and  the  consumer.  Being  merely  a 
locality  product  the  danger  of  too  high  a  price 
is  avoided  by  the  disposition  of  the  purchaser 
to  buy  some  other  brand  whenever  the  specialty 
threatens  to  become  a  luxury,  and  since  in  a 
locality  fairly  uniform  costs  may  be  arrived  at 
through  fairly  uniform  practises,  the  high-cost 
producer  is  not  a  guide.  The  California  Fruit 
Growers'  Association  has  handled  this  situa- 
tion with  considerable  skill.  The  supply  and 
price  of  oranges  are  more  uniform  than  in  the 

209 


The  Organization  of  Modern  Business 

case  of  any  other  fruit.  The  fruit  growers 
eliminate  speculation  and  instead  of  throwing 
their  product  heedlessly  on  the  auction  block, 
carry  it  themselves,  through  a  widespread  or- 
ganization, almost  to  the  consumer. 

We  are  not  here  proposing  a  plan  for  the 
complete  regulation  of  the  world.  There  are 
enough  such  plans  around  already.  The  insane 
asylums  are  full  of  them  and  we  have  always 
with  us  and  at  large  the  Socialists,  the  Com- 
munists, the  Syndicalists,  the  National  Guild- 
ists,  each  holding  to  certain  basic  principles 
and  each  proposing  certain  basic  remedies  with 
individual  slants  of  infinite  ingenuity.  They  all 
start,  although  not  ostensibly,  with  the  notion 
that  human  nature  not  only  should  be,  but  can 
be,  recast.  They  form  what  they  call  an  ideal 
conception  of  society,  and  love  to  think  of  them- 
selves as  idealists.  As  a  matter  of  fact  their 
ideal  does  not  go  beyond  the  stomach.  All  So- 
cialistic or  radical  conceptions  of  society  are 
based  not  upon  the  joys  of  creation  and  compe- 
tition but  upon  the  delight  which  cows  are  sup- 
posed to  feel  when  dwelling  in  succulent  pas- 
tures. They  would  deny  that  the  world  is 
necessarily  a  struggling  sort  of  a  place.  Start- 
ing with  this  false  promise  inevitably  they  end 
with  a  country  that  is  regulated — but  not  alive. 

210 


Putting  a  Business  in  Balance 

It  has  been  fairly  well  demonstrated  that  the 
plan  of  operation  of  the  Eussian  Soviet  Re- 
public would  function  perfectly  were  it  not  for 
the  fact  that  there  are  human  beings  in  Russia. 
As  it  is,  the  plans  do  beautifully  and  the  people 
starve  to  death  in  proportion  to  the  attention 
that  they  pay  to  the  plans. 

What  I  am  proposing  is  not  a  theory  that 
disregards  the  world  and  its  inhabitants,  but 
merely  a  rationalizing  of  business  and  an  ap- 
plication to  it  of  a  reasonable  amount  of  com- 
mon sense.  We  cannot  divorce  business  from 
nature  any  more  than  we  can  divorce  life  from 
death.  But  we  can  so  regulate  our  business 
affairs  just  as  we  regulate  our  personal  health 
so  that  a  slight  ailment  will  not  necessarily 
develop  into  a  serious  one.  We  can  apply  pre- 
ventative  business  science  just  as  we  are  be- 
ginning to  learn  to  apply  preventative  medical 
science.  They  are  now  beginning  to  learn  that 
medicine  when  introduced  into  the  human  sys- 
tem causes  a  chemical  reaction.  They  are  on 
the  way  to  the  study  of  these  reactions  to  the 
end  of  preventing  maladies  instead  of  curing 
them. 

That  is  all  I  have  in  mind  here  and  on  each 
point  I  have  a  test  of  actual  experience.  I  want 
to  arrange  and  present  knowledge  and  find  out 

211 


The  Organization  of  Modern  Business 

meanings  and  reactions.  Perhaps  this  is  not 
practical.  If  it  is  not,  then  the  best  pharmacist 
must  be  one  who  makes  up  prescriptions  with 
his  eyes  shut  and  learns  whether  he  is  right 
or  wrong  only  by  the  condition  of  the  patient 
after  taking. 

We  can,  but  not  without  difficulty,  divorce  a 
single-unit  business  from  general  conditions. 
We  can  join  all  of  the  units  engaged  in  the 
same  kind  of  business,  in  a  locality,  and  some- 
what more  easily  make  them  independent  of 
conditions,  while  we  can  take  a  national  busi- 
ness and  to  a  considerable  degree  make  pros- 
perity permanent  with  it.  But  we  can  do  none 
of  these  things  without  comprehensive  plan- 
ning. 

Let  us  take  first  the  individual  unit.  Each 
man  is  most  interested  in  that  which  intimately 
concerns  himself.  If  later  he  joins  a  combina- 
tion it  will  be  only  because  the  fruit  of  com- 
bined effort  promises  to  be  greater  than  that 
of  individual  effort.  We  do  not  have  to  bother 
with  altruism.  Altruism  is  commonly  prac- 
tised at  the  expense  of  customers  or  creditors. 
We  are  going  to  plan  to  make  money — not  to 
make  a  killing  or  anything  of  the  sort,  for  that 
is  not  business.  The  brigand  eventually  gets 

212 


Putting  a  Business  in  Balance 

shot  or  goes  to  jail,  and  so  does  the  business 
that  thinks  of  itself  as  a  Robin  Hood.  We  want 
a  steady  profit,  year  in  and  year  out. 

The  first  question  to  be  settled  concerns  what 
we  are  going  to  do.  What  are  we  going  to 
make  or  sell,  or  make  and  sell?  That  seems  to 
be  a  ridiculous  sort  of  question,  especially  if 
we  are  already  in  business.  Why  ask  it!  Be- 
cause we  must,  before  we  can  plan  anything, 
settle  upon  a  business  policy.  Shall  we  manu- 
facture and  sell,  or  shall  we  speculate  ?  No  one 
questions  the  dishonesty  of  sending  stockhold- 
ers' or  perhaps  creditors'  money  down  to  Wall 
street  to  play  the  market.  But  if  we  make 
"favorable  contracts"  over  long  periods — buy 
in  excess  of  needs  in  the  hope  of  being  able  to 
get  a  better  price  on  the  sale  of  the  finished 
article  on  account  of  the  advance  in  raw  mate- 
rial— then  we  are  as  much  putting  our  money 
into  speculation  as  though  we  had  frankly  dis- 
patched it  to  the  market. 

We  have  to  choose  our  method  of  business. 
If  we  intend  to  make  an  article  in  which  the 
value  of  the  labor  is  low  and  the  raw  material 
high,  then  we  can  choose  either  to  pass  on  the 
goods  that  come  to  us  plus  a  small  charge  for 
our  services,  or  we  can  regard  our  actual  serv- 

213 


The  Organization  of  Modern  Business 

ice  as  of  no  moment  and  choose  to  stake  our 
chances  of  success  on  buying  low  and  selling 
high. 

The  latter  is  a  perfectly  legitimate  business 
policy  but  if  we  follow  it  we  should  not  hold 
ourselves  out  to  the  world  as  a  manufacturing 
concern,  or  ask  people  without  a  full  knowledge 
of  what  we  are  doing  to  risk  money  with  us, 
and  we  must  be  prepared  always  to  have  at 
hand  large  sums  of  money  in  order  to  cover 
ourselves  in  declining  markets.  As  I  have  al- 
ready said  in  a  previous  article,  one  must  de- 
cide whether  it  is  worthwhile  to  organize  for 
the  manufacturing  fee  when  the  real  object  of 
the  organization  is  to  make  money  out  of  com- 
modity speculation.  Certainly  it  is  not  worth- 
while to  put  a  great  investment  into  plant  or 
equipment.  It  is  not  worthwhile,  for  instance, 
to  invest  some  millions  in  a  department  store 
and  depend  for  profit  upon  speculative  buying. 
The  most  successful  department  stores  in  this 
country  do  not  carry  large  inventories.  They 
do  not  hope  to  buy  low  and  sell  high — that  is 
the  hope  which  a  large  inventory  expresses. 
They  are  content  to  buy  at  the  lowest  price 
that  the  market  offers,  almost  from  day  to  day 
— to  buy  only  that  which  they  know  they  can 
sell,  and  to  sell  it  at  the  buying  price  plus  a 

214 


Putting  a  Business  in  Balance 

merchandising  fee.  If  the  decision  be  to  make 
money  by  skilful  or  lucky  buying  and  selling, 
then  the  plan  of  the  business  may  be  simply 
stated.  It  is  this : 

Keep  down  the  fixed  investment  to  the  lowest 
possible  point.  Keep  a  large  and  instantly 
available  reserve  fund  in  cash  or  convertible 
securities,  and  regulate  your  buying  so  that 
you  will  not  buy  beyond  the  ability  of  the 
money  that  you  have  in  hand  satisfactorily  to 
margin  your  stock  if  the  market  makes  a  set 
against  you.  It  is  possible  in  straight  manu- 
facturing or  selling  to  get  along  on  a  shoe- 
string but  successful  speculation  requires  a  lot 
of  money,  and  it  is  suicidal  for  any  man  not  in 
the  capitalist  class  to  attempt  to  speculate  in 
commodities.  We  often  say  of  a  bankrupt : 
"Poor  fellow,  he  did  not  know  how  to  buy." 
Usually  we  mean  that  he  bought  too  much  at 
too  high  a  price.  Just  as  in  the  stock  market 
the  small  man  comes  rushing  in  to  buy  at  the 
top  of  the  market  and  then  drops  his  all  when 
the  turnabout  comes,  so  the  small  merchandiser 
comes  in  on  the  top  of  the  commodity  market. 
He  buys  most  lavishly  when  prices  are  highest 
for  then  he  has  money ;  he  has  made  money  on 
an  ascending  market  and  flushed  with  specula- 
tive profits,  comes  in  for  a  killing — and  is  finan- 

215 


The  Organization  of  Modern  Business 

cially  killed.  If  lie  had  bought  according  to 
his  needs,  he  would  never  find  himself  with  a 
stock  that  he  has  to  sell  for  leas  than  he  paid 
for  it.  It  is  not  always  his  fault;  speculating 
manufacturers  urge  purchases  on  an  ascending 
market.  They  have  not  the  foresight  to  plan 
ahead ;  if  they  did  they  would  know  that  their 
retailers  would  prosper  only  as  they  kept  out 
of  speculation  and  kept  in  merchandising. 

In  our  discussion  of  business  planning  let  us 
assume  that  we  expect  to  make  money  out  of 
the  service  we  render  and  not  out  of  luck.  We 
shall  take  for  granted  that  money  is  not  to  be 
made  by  accident.  We  hope  to  be  able  to  take 
advantage  of  fortuitous  accidents.  We  hope  to 
plan  for  success  and  that  involves  the  correla- 
tion of  manufacturing,  selling,  and  finance  so 
that  a  jam  may  occur  nowhere. 

In  the  house  of  the  New  York  Yacht  Club 
there  are  many  models  of  ships,  most  of  them 
built  before  the  ships  themselves  were  built. 
These  models  are  of  great  use  in  enabling  the 
designer  to  alter  certain  improper  features  be- 
fore he  actually  starts  work  on  the  boat  itself. 
There  are  such  things,  as  an  instance,  as  dif- 
ferent sets  of  rigging  interfering  one  with 
another  unless  carefully  laid  out.  A  ship  with 
a  slightly  wider  beam  or  a  slightly  higher  mast 

216 


Putting  a  Business  in  Balance 

would  throw  the  rigging  out  of  line.  Some  of 
these  things  would  not  be  discovered  unless 
worked  out  on  the  model.  They  try  these 
models  in  tanks  and  learn  what  the  boat  will  do. 

Planning  for  business  is  on  the  same  princi- 
ple. If  you  think  a  thing  over  you  can  con- 
sider it  item  by  item,  but  you  can  seldom  get  a 
collective  picture.  When,  however,  you  try  to 
build  a  model — a  plan — of  what  is  to  happen, 
you  will  find  gaps  and  lappings  and  interfer- 
ences. Then  you  can  redraw  your  plan. 

"We  have  discussed  labor  and  selling  and  cost 
accounting,  but  I  know  of  nothing  that  will 
make  more  money  for  a  business  man  than 
properly  to  plan,  for  planning  is,  after  all,  the 
basis  of  all  other  functions.  I  have  seen  the 
best  of  workmen  without  work  because  it  was 
not  known  in  advance  that  some  apparently 
unimportant  condition  would  prevent  a  job 
from  reaching  the  group  of  workmen  con- 
cerned. I  have  seen  machines  worth  thousands 
of  dollars  held  on  the  assembly  floor  because 
screws  worth  a  nickel  each  were  not  on  hand. 
I  have  seen  companies  go  bankrupt  because 
they  could  not  get  money,  and  yet  on  their  floor 
they  have  had  two  or  three  times  the  amount  of 
stock  tied  up  due  to  improper  planning. 

Planning,  therefore,  in  advance  lays  out  the 

217 


The  Organization  of  Modern  Business 

work  for  the  workmen  so  that  there  will  be  no 
waste  of  his  time;  it  discovers  a  lack  of  raw 
materials  before  the  materials  are  needed;  it 
causes  the  making  or  sharpening  of  tools  be- 
fore the  machinery  is  ready  to  work.  It  tells 
the  owner  where  there  will  be  idle  machines  so 
that  he  can  go  out  and  sell  work  for  those  ma- 
chines. A  real  planning  department  that  han- 
dles everything  properly  deals  with  the  things 
that  must  later  happen  in  the  actual  plant. 
Through  the  various  little  cards,  indexes, 
hooks,  etc.,  representing  raw  materials,  tools, 
machines,  etc.,  the  planner  can  visualize  the 
shop  within  the  small  area  of  a  planning  room. 
He  not  only  visualizes  the  shop — gages  the 
speed  of  the  engine — but  from  the  production 
knows  in  advance  what  must  be  sold  and  the 
amount  of  money  needed.  The  plan  in  effect 
rehearses  the  business  performance  that  is 
about  to  start. 

We  have  already  decided  that  we  shall  not 
speculate — that  we  shall  buy  only  what  we  need 
and  in  such  time  that  it  will  be  on  hand  exactly 
when  we  do  need  it.  In  merchandising  the 
amounts  of  these  purchases  will  be  guided  by 
the  sales  that  we  determine  to  make.  We  have 
here  to  do  more  largely  with  manufacturing ; 
merchandising  is  guided  by  a  few  general  prin- 

218 


Putting  a  Business  in  Balance 

ciples  and  a  multitude  of  detailed  applications* 
Manufacturing  may  be  of  three  kinds : 

1.  Job  work  in  which  each  order  is  special 
and  only  a  comparatively  small  amount  is  to 
order. 

2.  The  continuous  repetitive  production  of  a 
single  type  of  article. 

3.  Quantity   production   to    the    customer's 
order. 

The  second  of  these  three  types  of  manufac- 
turing is  the  most  economical  for  the  patent 
reason  that  if  we  do  only  one  thing  we  can  so 
regulate  our  tools  and  our  progress  of  work 
as  to  do  each  operation  in  the  best  pos- 
sible way.  The  automobile  industry  is  the 
most  apparent  application  of  this  one-product- 
repetitive-operation  plan.  The  best  results  are 
obtained  from  a  highly  organized  plant  with  a 
high  machine  overhead  that  divides  into  a  tiny 
unit  overhead  on  account  of  the  speed  of  manu- 
facture. 

This  being  the  ideal  of  manufacturing,  the 
thought  in  planning  the  conduct  of  a  business 
is  always  towards  standardization  and  the  in- 
troduction of  the  largest  possible  number  of 
repetitive  operations.  For  repetition  elimi- 
nates waste  and  hence  permits  of  making  at 
such  a  price  that  the  demand  may  be  kept 

219 


The  Organization  of  Modern  Business 

fairly  constant.  Therefore,  although  most  con- 
cerns will  find  that  they  are  offered  diverse 
kinds  of  business,  it  will  be  necessary  in  the 
planning  of  production  and  sales,  in  order  to 
secure  continuity  of  market,  to  restrict  opera- 
tions to  those  articles  which  can  be  the  most 
economically  made.  It  may  not  be  advisable 
to  make  only  one  article  but  if  more  than  one 
article  be  made,  then  each  should  be  made  in 
what  amounts  to  a  separate  shop  although  all 
may  be  under  a  single  roof.  Hence,  as  I  have 
explained  in  a  previous  article  on  factory  build- 
ing, the  second  and  the  third  schemes  of  manu- 
facture are  essentially  alike  or  should  be  made 
essentially  alike. 

The  first,  or  jobbing  business,  can  be  brought 
into  the  general  idea  of  standardization  or  it 
can  be  frankly  jobbing  and  depend  for  con- 
tinuity of  work  upon  the  craftsmanship  which 
it  exercises.  The  standardized  process  of 
manufacturing  either  turns  out  a  special  trade- 
marked  product  that  no  one  else  makes,  or 
takes  a  common  product  and  by  superior  and 
economical  process  makes  it  special.  No  con- 
tinuity is  to  be  expected  without  a  personality 
of  some  sort  being  paramount  in  the  goods. 
The  breakfast  food  makers,  the  biscuit  makers, 
the  tool  makers,  the  automobile  people,  all  give 

220 


Putting  a  Business  in  Balance 

examples  of  personality  in  goods;  the  danger 
is  that  in  prosperous  times  the  personality  may 
Ibe  forgotten  and  the  product  rushed  out  at  a 
high  price  because  unnamed  products  are  then 
high  in  price. 

One  of  our  leading  perfume  makers  did  not 
increase  the  price  of  his  perfume,  toilet  waters 
and  powders  at  all  during  the  war  years;  his 
costs  ran  up  but  he  improved  his  manufactur- 
ing processes  and  taking  a  smaller  unit  profit 
made  a  large  total  profit  on  the  increase  in 
sales.  Consequently  when  the  slump  in  gen- 
eral business  came  he  was  not  touched ;  the  peo- 
ple knew  that  his  prices  had  not  gone  up  and 
so  they  did  not  wait  for  them  to  come  down. 
His  business  has  moved  on  a  steadily  rising 
scale  and  has  not  been  affected  at  all  by  "  con- 
ditions." 

The  job  man  is  apparently  not  so  fortunately 
situated  as  the  high-production  man;  he  makes 
specially  or  sometimes  merely  repairs  and  it 
would  seem  that  he  would  be  outside  of  plan- 
ning and  be  wholly  dependent  upon  the  whim  of 
the  purchaser — it  would  seem  that  he  could  not 
make  a  necessity  out  of  himself.  But  his  work 
can  be  planned  and  he  can  trademark  himself 
in  effect  by  the  quality  of  the  work  he  turns 
out.  His  establishment  should  be  compara- 

221 


The  Organization  of  Modern  Business 

tively  small  for  in  order  to  get  the  best  results 
the  actual  personality  of  the  proprietor  should 
at  all  times  be  in  evidence;  he  should  be  there 
as  the  living  evidence  of  craftsmanship.  It  is 
possible  to  introduce  a  kind  of  broad  stand- 
ardization in  jobbing — the  automobile  industry 
is  considering  the  establishment  of  repair 
shops  on  the  production  basis  and  specializing 
the  work  that  they  do.  In  that  case  repairs 
will  move  from  shop  to  shop  just  as  cars  do  in 
their  original  building.  And  in  any  sort  of  re- 
pair shop  it  will  always  be  a  policy  to  deter- 
mine in  advance  how  broad  the  scope  of  opera- 
tions shall  be. 

If  the  scope  be  large  then  the  machinery 
should  be  neither  special  nor  expensive  so  that 
the  plant  can  be  laid  up  if  necessary  without 
the  accumulation  of  excessive  overhead. 

Take  quantity  production.  We  have  our 
plant  planned  to  make  a  certain  quantity  of 
goods  at  a  certain  price;  that  is  the  amount 
that  we  have  to  sell.  Then  we  must  plan  our 
sales  to  dispose  of  this  amount.  It  is  for  the 
sales  department  to  fix  quotas,  methods  and 
advertising  to  dispose  of  this  amount — no  more 
and  no  less.  In  the  sales  are  included  credit 
terms. 

With  the  production  and  the  sales  fixed  we 

222 


Putting  a  Business  in  Balance 

are  in  a  position  to  calculate  with  nicety  the 
amount  of  money  that  we  shall  need.  We  know 
that  in  our  production  scheme  we  shall  have  in 
hand  an  inventory  of  raw  materials  or  parts 
that  will  not  exceed  a  certain  amount,  and  we 
know  that  if  our  sales  are  managed  according 
to  schedule  we  shall  never  have  more  than  a 
certain  finished  inventory.  The  money  needed 
to  carry  these  inventories  and  to  pay  the  labor 
and  overhead  expenses  is  simply  calculated. 
The  money  requirements  can  be  charted 
through  the  year.  Our  business  may  have 
seasons  and  the  inventories  will  rise  and  fall 
according  to  the  seasons;  that  will  appear  on 
the  financial  charts.  We  extend  credit  upon  a 
certain  basis ;  that  means  that  with  perfect  col- 
lections certain  sums  will  be  coming  in  while 
others  are  going  out,  and  these,  too,  may  be 
charted  so  that  we  shall  have  two  financial  lines 
which  will  or  should  cross  at  one  or  several 
points  during  the  year,  thus  marking  the  points 
when  we  have  cleared  our  indebtedness  and 
made  our  profits. 

But,  of  course,  we  will  not  have  perfect  de- 
liveries to  us  of  raw  materials,  nor  will  our 
finished  product  always  go  out  on  schedule. 
Therefore,  we  must  allow  a  percentage  of 
money  for  emergencies  in  addition  to  the 

223 


The  Organization  of  Modern  Business 

planned  needs — reserves  against  contingencies. 
In  effect  we  have  thus  a  budget;  if  we  in- 
crease production  we  must  provide  money  in- 
creases all  along  the  line,  and  also  increase  our 
reserves.  Much  of  the  difficulty  of  the  automo- 
bile trade  in  particular  was  in  increasing  pro- 
duction without  making  plans  for  the  sales  of 
the  product  and  the  reserve  financing  in  the 
case  of  emergency.  An  increase  in  production 
demands  a  corresponding  increase  all  through 
the  plan  and  that  is  why  production,  which  is 
the  life  of  business,  may  also,  if  let  run  amuck, 
destroy  what  it  would  create. 


224 


CHAPTER  XI 

CONTROLLING  YOUR  SOURCES  OF  SUPPLY 

Go  down  almost  any  day  to  the  lower  water- 
front of  New  York  City  and  you  will  find  block 
after  block  of  stalled  trucks  and  wagons.  As 
an  exhibition  in  the  history  of  vehicular  trans- 
portation it  is  most  interesting.  You  will  find 
splendidly  equipped  motor  trucks,  many  of 
them  with  detachable  bodies  so  that  the  expen- 
sive chassis  need  not  be  held  idle  for  loading 
or  unloading.  You  will  find  trucks  with  their 
capacity  enlarged  by  trailers.  You  will  find 
fine  teams  and  also  you  will  find  one-horse 
wagons  and  perhaps  you  will  come  across  some 
carts.  In  fact,  on  a  good  day,  you  are  apt  to 
run  across  specimens  of  nearly  every  kind  of 
goods  vehicle  that  has  been  used  in  New  York 
within  the  last  century. 

The  exhibition  draws  interest  from  a  great 
many  angles.  These  trucks  and  wagons  may 
be  in  line  for  a  chance  to  take  on  or  leave  a 
load  at  a  steamship  pier — they  are  waiting 
around  for  work.  Or  again  they  may  be  in  a 


The  Organization  of  Modern  Business 

headless  traffic — victims  of  that  misplaced 
energy  that  tries  to  put  two  things  where  only 
one  will  go.  In  any  event  they  are  doing  noth- 
ing necessary  or  useful.  They  may  waste  a 
couple  of  hours  or  they  may  waste  a  couple  of 
days,  and,  because  they  do  waste  so  much  time, 
it  commonly  costs  more  to  move  a  parcel  from 
a  New  York  dock  to  an  uptown  warehouse  than 
to  bring  it  from  China  to  the  dock. 

But  the  point  is  that  in  such  a  jam  the  most 
efficient  vehicle  is  that  which  is  the  least  effi- 
cient carrier.  It  is  less  expensive  for  a  horse 
and  cart  worth  perhaps  $100  to  hang  around 
doing  nothing  than  it  is  for  a  $5,000  or  $6,000 
truck  to  do  likewise.  It  is  perfectly  possible  to 
avoid  these  costly  waterfront  jams.  The  police 
can  prevent  them  and,  when  the  city  puts  in  a 
little  more  management  and  spends  a  little 
money  in  arrangement  of  loading  platforms 
and  the  like,  there  will  be  no  more  waiting  or 
jamming.  The  big  truck  and  not  the  little  cart 
will  be  the  cheap  carrier  of  goods.  With  a 
vehicle  doing  more  waiting  than  working,  the 
one  that  costs  least  to  wait  instead  of  the  one 
that  costs  least  to  work  is  the  more  efficient. 

We  have  a  good  deal  the  same  situation  in 
the  organization  of  manufacturing— which  in 
previous  chapters  I  have  discussed.  The  theory 

226 


Controlling  Your  Sources  of  Supply 

has  been  developed  that  manufacturing  can  be 
and  ought  to  be  rather  an  exact  science  and 
can  be'  and  ought  to  be  rather  an  exact  service, 
and  that  the  reward  of  the  proprietor  of  an 
establishment  should,  and  eventually  must,  be 
determined  by  the  character  of  the  service  that 
he  renders.  This,  taking  service  as  the  ability 
to  make  a  large  addition  of  value  at  a  small 
addition  of  cost,  means  that  the  highest  service 
can  be  rendered  only  through  standardization 
and  a  complete  planning  of  operation  from  the 
source  of  raw  material  to  the  final  purchase  by 
the  consumer.  In  planned,  standardized,  repe- 
titive fabrication  the  machinery  and  the  man- 
agement form  very  large  parts.  Both  the  tools 
and  the  men  are  expensive  unless  operated  to 
full  capacity — then  they  become  very  cheap 
indeed. 

All  of  this  has  been  sufficiently  proved  in 
practise  and  also  it  has  been  proved  that  it  is 
these  finely  balanced  institutions  that  suffer 
most  in  the  kind  of  traffic  jam  into  which  busi- 
ness every  little  while  gets  itself. 

For  the  purpose  of  not  doing  business  noth- 
ing can  approach  the  old-fashioned  shop  and  if 
business  is  a  now-and-then  affair  it  ought  to  be 
organized  on  a  now-and-then  basis.  A  man 
ought  to  be  ready  to  get  in  and  to  get  out 

227 


The  Organization  of  Modern  Business 

quickly.  He  should  have  only  a  light  kit — and 
study  the  agility  of  the  yeggman. 

But  there  is  no  reason  that  business  should 
get  into  a  jam.  There  is  no  reason  why  a  num- 
ber of  vehicles  cannot  go  to  a  wharf  and  take 
away  the  goods  that  they  want  without  spend- 
ing most  of  their  time  falling  over  and  cursing 
each  other. 

We  cannot  prevent  cloudbursts  or  bad  crop 
years,  although  it  is  beginning  to  be  discovered 
that  we  can  do  a  great  deal  to  render  them 
harmless,  and  so  we  cannot  separate  business 
from  nature.  Neither  is  it  desirable  that  we 
should  do  so.  One  of  the  difficulties  of  so  many 
reform  movements  is  that  because  it  is  possi- 
ble to  modify  or  even  to  thwart  nature  to  a 
degree,  a  whole  theory  is  built  upon  thwarting 
nature.  This  is  not  more  reasonable  than  in- 
sisting that  the  time  for  eating  strawberries  in 
the  northern  states  should  be  January,  because 
it  is  possible  with  a  great  deal  of  trouble  to 
raise  moderately  satisfactory  strawberries  for 
eating  in  January. 

It  is  not  necessary  to  change  the  face  of  na- 
ture in  order  to  avoid  traffic  blocks  in  business. 
But  it  is  necessary  to  use  management.  Just 
as  one  section  of  management  or  planning  has 
to  do  with  the  work  as  work  and  the  sales  as 

228 


Controlling  Your  Sources  of  Supply 

sales  so  another  has  to  see  that  the  business  as 
a  business  does  not  enter  a  street  that  is  al- 
ready full.  These  somewhat  cryptic  remarks 
will  shortly  have  an  explanation.  But  it  will 
help  to  remember  that  the  expert  planning  of  a 
single  business,  although  it  will  stabilize  profits 
and  take  the  whole  out  of  the  common  run,  will 
not,  without  more,  render  it  but  slightly  sus- 
ceptible to  general  business  and  labor  condi- 
tions. 

The  most  finely  planned  and  finely  equipped 
business  unit  may  easily  get  into  a  more  ex- 
pensive jam  than  its  ill-equipped  fellow. 

Each  business  is  interdependent.  A  unit  can- 
not exist  quite  alone;  unless  it  can  plan  and 
therefore  control  the  source  of  its  raw  mate- 
rials and  the  final  disposition  of  its  products, 
it  may  get  jammed  and  be  no  better  off  for  the 
time  being  than  the  ill-planned  business. 

The  principle  that  a  manufacturer  shall  con- 
tribute a  service  and  simply  add  the  cost  of 
that  service  to  the  value  of  the  raw  material, 
thus  keeping  his  prices  consonant  with  the  buy- 
ing power  of  the  public,  will  have  little  force  if 
somewhere  in  the  processes  before  him  or  in 
the  processes  after  him,  the  speculative  ele- 
ment so  controls  the  situation  that  he  cannot 
function  on  schedule.  Then  he  and  his  splendid 

229 


The  Organization  of  Modern  Business 

vehicle  are  worse  off  than  the  fellow  with  the 
horse  and  cart  who  can  sit  and  smoke  and  take 
the  air. 

For  instance,  in  the  parlous  closing  months 
of  1920  a  good  many  manufacturers  who  were 
equipped  to  do  business  on  a  low-cost  scale 
could  not  operate.  Some  having  previously 
found  it  somewhat  cheaper  to  buy  semi-finished 
material  rather  than  wholly  to  convert  the  raw 
material,  discovered  that  the  people  ahead  of 
them,  the  people  from  whom  they  had  been  ac- 
customed to  buy,  were  loaded  with  high-priced 
material  and  were  hoping  to  hold  prices  long 
enough  to  get  out.  Thus  the  manufacturer  had 
his  way  blocked  to  the  source  of  raw  material. 
He  was  physically  prepared  to  manufacture 
and  sell  at  a  price  that  people  would  pay  but  he 
could  not  do  this  if  he  had  to  start  with  high- 
priced,  semi-finished  material.  Many  of  the 
textile  people  who  did  not  spin  their  own  yarns 
found  themselves  in  exactly  this  position. 
They  were  ready  to  do  business  but  for  some 
time  they  could  not  buy  yarn  at  a  price  that 
would  let  them  do  business. 

Other  manufacturers  who  did  not  have  this 
particular  disability  and  who  could  get  raw  ma- 
terials at  the  prices  they  wanted  had  been  ac- 
customed to  obtain  their  distribution  through 

230 


Controlling  Your  Sources  of  Supply 

jobbing  houses.  Some  of  these  jobbing  houses 
were  filled  with  high-priced  goods — because  a 
jobber  in  nine  cases  out  of  ten  must  make  his 
living  by  speculation — and  the  jobbers  were 
waiting  around  to  dispose  of  their  expensive 
stocks  before  they  took  on  new  stocks.  The 
speculators  on  both  ends  of  the  process  of  con- 
version eventually  had  to  take  their  losses  and 
touch  earth  but  in  the  meantime  the  man  in  the 
center  suffered  deeply. 

As  I  pointed  out  in  a  previous  chapter,  those 
concerns  which  came  through  the  depression 
almost  without  knowing  that  there  was  a  de- 
pression, were  those  which  kept  the  whole  road 
from  raw  material  to  ultimate  consumer  open. 

There  has  been  also  in  some  institutions — in 
fact  in  a  majority — a  clogging  of  productive 
ability  through  ineptness  in  adjusting  labor 
costs  and  here  we  have  seen  some  very  foolish 
and  ill-thought-out  expedients.  We  shall  see  in 
a  moment  how  this  classes  with  material  and 
distribution.  The  most  extraordinary  and  at 
the  same  time  the  most  usual  plan  has  been  not 
to  touch  wages,  which  have  been  curiously  con- 
sidered as  something  apart  from  instead  of  a 
part  of  production,  but  to  keep  wages  at  the 
old  rates  and  operate  through  only  a  part  of 
the  week — thereby  making  as  certain  as  a  hu- 

231 


The  Organization  of  Modern  Business 

man  being  well  can  that  the  finished  product, 
if  sold  at  all,  will  have  to  be  sold  at  a  higher 
instead  of  at  a  lower  price  than  previously ! 

It  is  not,  as  so  many  kindly  disposed  souls 
think,  a  help  to  the  wage  earner  to  try  to  pre- 
serve for  him  a  wage  that  is  not  expressed  in 
production.  It  is  the  part  of  management  and 
of  skilful  planning  so  to  regulate  the  work  that 
a  high  wage  may  be  paid.  The  management 
which  does  this  gets  the  pick  of  the  workers. 
But  a  wage  cannot  be  divorced  from  work.  A 
company  that  has  properly  conserved  its  sur- 
plus and  has  adequate  cost  accounting  methods 
may,  running  on  a  part-time  basis,  charge  to 
the  product  only  so  much  of  the  overhead  as 
the  working  hours  actually  consume  and  charge 
the  balance  against  the  contingent  fund  estab- 
lished for  the  purpose.  This  cannot  be  done 
forever. 

Let  us  remember  our  principles.  The  com- 
pany cannot  exist  unless  it  makes  an  adequate 
charge  for  service — a  fair  profit.  If  the  officers 
think  that  it  can  pay  high  wages  that  mean  an 
added  charge  to  fair  cost  then  they  are  simply 
deluding  themselves.  Fortunately  in  compre- 
hensive planning,  the  human  element,  that  is, 
the  wage  earner,  has  a  part  with  the  manage- 
ment and  can  aid  in  determining  what  is  the 

232 


Controlling  Tour  Sources  of  Supply 

least  unsatisfactory  wage.  A  speculation  in 
wages  no  more  than  a  speculation  in  materials 
can  be  allowed  to  clog  the  highway  of  com- 
merce. 

No  sum  of  money  paid  for  anything  can  ever 
be  wholly  satisfactory  and  we  have  to  reach 
every  conclusion  by  a  series  of  compromises. 
The  wage  earner,  because  wages  are  so  mo- 
bile and  he  is  so  near  the  source  of  production, 
has  his  wages  go  up  somewhat  ahead  of  gen- 
eral retail  prices.  Because  of  this  same  mo- 
bility they  also  begin  to  fall  ahead  of  a  fall  in 
general  retail  prices,  just  as  they  rise  ahead  of 
prices.  He  has  a  good  inning  followed  by  a 
bad  inning.  The  fixed  salary  man  has  a  bad 
inning  followed  by  a  good  inning.  So,  as  a 
rule,  the  sum  of  dissatisfaction  does  not  much 
vary.  In  the  perfect  state,  of  course,  we  shall 
not  have  these  individual  dissatisfactions,  for 
then  we  shall  have  bureaus  controlling  the  sun 
and  the  winds  and  thus  wholly  eliminate  the 
playful  cussedness  of  both  nature  and  human 
nature. 

However,  we  can,  without  drawing  on  the 
realm  of  the  infinite,  attain  an  average  of  mini- 
mum dissatisfaction  with  wages  and  maintain 
a  satisfactory  and  regular  forward  business 
progression,  if  only  we  organize  to  gain  these 

233 


The  Organization  of  Modern  Business 

things.  The  organization  may  perhaps  be  com- 
plex in  statement  but,  divided  into  its  several 
parts,  it  is,  in  fact,  rather  simple  and  can  be 
attained  by  a  combination  of  elements  and 
practises  which  have  already  proved  them- 
selves in  practise.  We  can  put  together  the 
good  things  that  we  know. 

The  stumbling  block  is  that,  although  you 
may  be  entirely  familiar  with  what  can  be  done 
in  each  branch  of  your  business,  to  do  it  may 
require  millions  of  dollars  where,  perhaps,  you 
have  only  thousands  or  hundreds  of  thousands. 
It  is  easy  enough  to  talk  about  keeping  the 
road  open,  but  that  requires  money.  It  may  be 
cheaper  to  take  one's  chances  with  raw  mate- 
rial than  to  attempt  a  control.  Usually  it  is. 
And  as  for  establishing  a  direct  line  to  the  con- 
sumer that,  too,  is  not  only  very  expensive  but 
involves  a  kind  of  knowledge  that  even  the  best 
manufacturer  will  hardly  possess.  So  what  is 
the  use  of  talking  about  these  things?  Only 
this.  The  big  companies  can  do  these  things. 
If  the  smaller  company  cannot  then  the  day  of 
the  small  company — of  the  small  business  unit 
standing  alone — is  over,  in  so  far  as  the  pro- 
duction of  those  things  which  may  vaguely  be 
classed  as  necessities  is  concerned. 

The  small  corporation  is  uncommonly  useful 

234 


Controlling  Your  Sources  of  Supply 

and  forms  a  necessary  part  of  our  life  but  it 
cannot  exist  in  competition  with  the  large  cor- 
poration and  there  is  no  reason  that  it  should. 
Take  a  familiar  example.  Some  of  the 
makers  of  automobiles  do  not  manufacture 
bodies.  They  find  it  cheaper  to  buy  from  large 
concerns  that  make  only  automobile  bodies. 
Such  concerns  make  standard  bodies  very 
cheaply  and  very  well  but  they  cannot  under- 
take, except  at  a  prohibitive  price,  to  make  a 
single  body  to  a  special  design.  A  few  blocks 
away  from  this  big  factory  is  a  small  factory 
that  also  makes  automobile  bodies.  The  small 
factory  may  decide  to  compete  with  the  big, 
efficiently-organized,  powerfully-financed  com- 
pany. It  will  find  that  it  loses  money  charg- 
ing prices  which  the  big  company  would  con- 
sider high.  The  owner  of  that  small  factory 
may  write  to  the  Federal  Trade  Commission  or 
he  may  start  a  campaign  of  some  kind,  or  he 
may  do  a  great  deal  of  talking  about  grinding 
monopoly.  But  if  he  is  sensible  he  will  not  at- 
tempt to  compete  with  the  big  company.  He 
will  go  to  the  making  of  special  bodies  and, 
while  using  all  possible  manufacturing  econo- 
mies, will  throw  into  his  work  the  ultimate  of 
craftsmanship  and,  instead  of  quarreling  with 
conditions,  he  will  make  his  own  conditions. 

235 


The  Organization  of  Modern  Business 

So  while  there  is  no  place  for  the  small  com- 
pany in  the  manufacture  of  standardized  arti- 
cles there  is  a  very  large  place  for  it  in  the 
making  of  patented  specialties  or  articles  which 
have  certain  of  the  indicia  of  craftsmanship 
or  which  are  really  craftsman's  products.  Be- 
tween these  two  fields  of  effort  there  is  no  com- 
petition— for  art  and  its  near  relatives  do  not 
have  market  prices.  I  do  not  recall  that  the 
Rogers  groups  killed  the  sculpture  market. 

We  are  here  concerned  with  the  standard- 
ized repetitively-made  product  and  in  this  the 
comparatively  small  company  cannot  hope  to 
exist  alone;  because  it  is  small  it  cannot  con- 
trol both  its  sources  of  raw  materials  and  the 
marketing  of  its  products. 

But  it  can  combine  with  others  to  secure  that 
control.  And  that  is  why  projects  which  re- 
quire millions  can  be  discussed  by  those  who 
may  have  only  thousands  to  spend.  The  indi- 
vidual can  go  into  crafts  production  and  remain 
individual;  but  if  he  goes  into  standardized 
production  he  will  be  forced  to  cooperate  or  co- 
ordinate with  others.  We  can  have  the  full 
benefit  of  the  largest  corporation  without  hav- 
ing a  single  legal  entity. 

Look  at  the  several  forms  of  big  business — 
some  big  by  letters  patent  and  some  big  by 

236 


Controlling  Tour  Sources  of  Supply 

voluntary  association.  There  are  many  forms 
of  combination  and  I  can  offer  none  as  ideal. 
There  are  no  ideal  examples  of  anything — the 
human  element  has  always  to  be  considered. 
No  organization  will  run  just  because  it  has  a 
good  set  of  plans;  some  one  has  to  put  the 
plans  into  operation. 

The  first  form  of  combination  is  that  exem- 
plified by  the  United  States  Steel  Corporation. 
This  company  goes  back  to  the  sources  of  the 
raw  material  and  is  in  every  respect  entirely 
independent  of  the  market.  It  mines  its  own 
coal  and  ore,  usually  transports  them  in  its 
own  cars,  and  sends  its  own  products  overseas 
in  its  own  ships.  As  is  well  known,  this  is  a 
combination  of  a  large  number  of  previously 
independent  companies.  Very  few  of  these 
companies  have,  however,  retained  an  inde- 
pendence in  other  than  perhaps  a  strictly  legal 
sense.  There  is  a  distinct  tendency  toward 
over-centralization,  but,  without  going  into  de- 
tails and  remembering  that  this  is  a  human 
and  not  a  super-human  organization,  it  must  be 
evident  to  every  fair-minded  person  that  this 
corporation  has  not  only  been  of  remarkable 
service  to  the  country  but  has  served  its  stock- 
holders equally  well. 

It  has  been  able  to  preserve  at  all  times  its 
237 


The  Organization  of  Modern  Business 

own  prices.  When  the  demand  for  steel  was 
very  high  the  company  might  have  followed  the 
example  of  the  so-called  "  independent "  com- 
panies and  sold  to  the  highest  bidder.  It,  how- 
ever, chose  to  maintain  what  it  believed  to  be 
a  fair  price  and  preserved  all  its  contracts  and 
its  contacts  with  the  result  that,  in  spite  of  a 
large  and  mostly  unfair  drive  against  it  by  a 
radical  section  of  labor  masquerading  as  a  con- 
servative section,  it  went  through  the  recon- 
struction period  almost  without  observing  that 
there  was  anything  to  reconstruct.  It  found 
itself  running  close  to  capacity  when  the  inde- 
pendent companies  that  had  charged  high 
prices  were  being  forced  to  shut  down.  It 
could  and  did  control  the  price  of  its  product. 
No  outside  force  could  anywhere  interfere  with 
its  plans. 

There  is,  of  course,  a  public  objection  to  a 
large  corporation  founded  on  the  thought  that 
because  it  is  large  it  is  also  a  monopoly  and 
will  want  to  squeeze  the  small  manufacturer. 
We  are  not  concerned  with  this.  The  kind  of 
mind  which  directs  a  combination  to  raise 
prices  is  the  kind  of  mind  which  races  to  its 
own  destruction. 

The  next  form  of  combination  which  effec- 
tively covers  a  complete  field  is  shown  in  the 

238 


Controlling  Your  Sources  of  Supply 

General  Motors  Company  and  the  Allied  Chem- 
ical &  Dye  Corporation. 

Take  the  General  Motors  Company.  This  is 
a  combination  of  a  considerable  number  of 
motor  car  manufacturing  companies,  parts 
makers,  body  makers,  and,  in  fact,  of  all  that 
enters  into  the  automobile  excepting  the  tires, 
and  of  some  allied  industries  for  stabilization 
such  as  tractors  and  lighting  appliances.  At  a 
favorable  time  probably  tires  will  also  be  in- 
cluded. This  company  does  not  go  back  to  the 
raw  material.  It  buys  its  metal.  An  automo- 
bile is  largely  labor  and  the  price  of  the  raw 
material  is  not  of  the  highest  importance — not 
sufficiently  high,  in  fact,  to  warrant  the  exten- 
sive expenditure  required  to  go  back  to  all  of 
the  sources  of  the  numerous  kinds  of  metal. 

The  peculiar  part  of  this  corporation  is  that 
many  of  the  units  are  competitive  and  the  com- 
pany has  seen  fit  in  order  to  encourage  indi- 
viduality and  initiative  to  preserve  this  compe- 
tition through  separate  selling  forces.  The 
union  is  in  finance  and  in  engineering  manage- 
ment. The  ordinary  automobile  factory  sells 
either  directly  to  the  consumer  through 
branches  or  controlled  agencies.  It  has  a  con- 
tact with  the  consumer  but  is  commonly  more 
an  assembling  than  a  complete  making  unit  and 

239 


The  Organization  of  Modern  Business 

thus  has  not  full  control  over  all  that  enters 
into  the  finished  product.  A  shortage  of  parts 
supply  or  bad  manufacturing  methods  at  only 
one  point  from  which  they  draw  supplies  may 
wreck  all  their  plans.  General  Motors  is  or- 
ganized to  control  all  that  it  uses  excepting  the 
raw  material  and  there  the  risk  of  becoming  in- 
volved is  less  than  the  risk  of  taking  on  a  very 
great  new  line.  We  organize  against  only  the 
ordinary  business  risk — not  against  any  and 
every  eventuality. 

Another  good  example  of  natural  combina- 
tion is  the  Allied  Chemical  and  Dye  Corpora- 
tion which  is  a  merger  of  five  non-competing 
companies:  The  General  Chemical  .Company 
makes  heavy  acids ;  the  Semet-Solvay  Company 
has  by-product  coke  ovens ;  the  Solvay  Process 
Company  makes  alkalis;  the  Barrett  Manufac- 
turing Company  takes  tar  as  a  base  and  makes 
various  products — it  buys  much  of  its  tar  from 
the  Semet-Solvay  Company  and  its  acids  and 
alkalis  from  the  other  two  companies;  the  Na- 
tional Aniline  &  Chemical  Company  makes 
dyes  and  uses  the  products  of  the  four  preced- 
ing companies.  Going  round  the  circle  each 
company  depends  for  something  upon  one  or 
all  of  the  other  companies.  All  of  these  com- 
panies are  large.  They  combined  because  they 

240 


Controlling  Your  Sources  of  Supply 

were  complementary  and  by  combination  they 
could  have  the  benefit  of  a  very  great  financial 
power  and  of  a  more  extensive  research  depart- 
ment than  any  one  company  could  afford.  The 
companies  themselves  each  preserve  the  old 
identity  and  lose  no  individuality.  There  we 
have  a  splendid  example  not  only  of  getting 
back  to  the  source  of  raw  materials  but  of  or- 
ganizing to  use  every  possible  waste  and  by- 
product. What  one  company  might  throw 
away  becomes  a  starting  point  in  the  operation 
of  the  next  company. 

But  still  what  have  these  great  corporations 
to  do  with  the  individual  who  is  hunting  for 
business,  who  is  hunting  for  a  way  to  make  his 
own  business  better?  He  has  not  a  hundred 
millions  or  so  to  spend  for  organization.  He 
is  not  looking  for  a  chance  to  invest  money — 
he  wants  to  make  money.  He  can  say  most 
effectively : 

"I  am  just  as  much  interested  in  comparing 
the  Steel  Corporation  or  General  Motors  with 
my  own  business  as  I  am  in  comparing  the  size 
of  my  country  plot  with  the  recently  calculated 
size  of  the  star  Betel-guese." 

No,  I  am  not  suggesting  that  as  a  pre- 
liminary to  better  business  each  manufacturer 
go  out  and  borrow  $100,000,000  or  so  and  or- 

241 


The  Organization  of  Modern  Business 

ganize  something.  I  am  only  pointing  out  that 
corporations  of  this  sort  are  one  form  of  insur- 
ing continuous  business.  Those  corporations 
were  once  units  of  moderate  size.  They  com- 
bined perhaps  without  an  entire  knowledge  of 
the  economic  consequence,  but  they  have  at- 
tained that  kind  of  manufacturing  and  finan- 
cial independence  which  the  smaller  link-in- 
the-chain  company  finds  itself  so  much  in 
want  of. 

Other  methods  are  open  to  the  man  of 
smaller  resource — if  he  associates  with  his  fel- 
lows. A  manufacturer  with  assets  of  half  a 
million  dollars  is  not  a  commanding  figure,  but 
when  twenty  such  men  get  together  they  will 
have  assets  of  $10,000,000,  and  the  twenty,  act- 
ing as  one,  find  that  they  have  something  ap- 
proaching authority.  For  instance,  chair- 
making  has  been  in  the  main  unremunerative ; 
it  is  an  in-and-out  sort  of  business.  I  think 
that  there  were  more  than  5,000  styles  of 
chairs.  No  one  manufacturer  had  a  big  enough 
business  to  make  it  worth  his  while  to  have  an 
exclusive  source  of  raw  material  and  he  was 
always  in  danger  from  speculation  at  one  end 
or  from  price-cutting  by  some  maker  who  did 
not  know  his  costs  at  the  other.  Chairs  are 

242 


Controlling  Your  Sources  of  Supply 

necessities.  The  total  volume  of  the  luxury 
maker  is  not  very  great.  Also  it  does  not  cost 
much  to  start  up  making  chairs.  If  a  style  put 
out  by  one  manufacturer  becomes  popular, 
another  manufacturer  can  quickly  shift  to  that 
style ;  perhaps  twenty  makers  will  go  to  that 
style  and  flood  the  market.  Alternately  the 
public  has  paid  too  little  or  too  much  for  chairs. 
The  manufacturers  themselves  were  always 
opening  up  and  shutting  down.  And  most  of 
them,  most  of  the  time,  were  hard  up.  It  ought 
to  have  been  a  good  business — but  it  was  not. 
Finally  a  number  of  the  makers,  at  first  in- 
formally and  later  formally,  came  together. 

They  found  that  a  thousand  or  more  styles 
would  satisfy  every  possible  demand.  They 
found  that  they  were  spending  too  much  money 
in  transportation.  They  found  that  no  factory 
had  a  sufficiently  large  business  to  devote  itself 
to  a  single  style  of  chair.  Therefore  they 
pooled  their  interests  in  one  company  of  con- 
siderable power  and  now,  although  the  com- 
bination is  hardly  under  way  at  the  time  of 
writing,  the  savings  promise  to  be  such  that 
practically  every  style  can  be  sold  at  a  much 
lower  price  and  yet  at  a  much  higher  profit 
than  previously. 

243 


The  Organization  of  Modern  Business 

These  are  examples  of  actual  merger  of  in- 
terest. We  have  still  a  different  kind  which  is 
working  out  in  this  country  through  the  trade 
association  and  in  Germany  through  the  Con- 
sortium. 

Look  at  the  new  German  development.  The 
Germans  have  made  some  large  industrial 
mergers,  the  most  important  under  the  leader- 
ship of  Hugo  Stinnes.  He  brought  together 
companies  which  give  an  ample  supply  of  coal, 
ore,  and  pig-iron  production.  To  these  he 
joined  steel  and  tool  steel  producers;  then  he 
took  over  the  great  Siemens  and  Halske  and 
Schukert  interlocking  electric  concerns.  Now 
he  has  a  practically  complete  economic  unit. 
Having  been  threatened  with  the  socialization 
of  industry  he  went  ahead  and  socialized  a  good 
part  of  it  himself!  This  has  been  going  on  in 
a  number  of  other  fields  in  Germany,  but  in 
addition,  since  it  is  very  difficult  for  a  single 
German  concern  to  export  under  present  condi- 
tions, various  groups  of  industries  have  com- 
bined into  Consortiums  which  not  only  permit 
united  action  in  export  but  compel  something 
more  than  cooperation  at  home. 

Germany  has  been  forced  into  this  by  the 
unusual  difficulties  attendant  upon  her  eco- 
nomic recovery.  It  is,  however,  but  a  sign  of 

244 


Controlling  Your  Sources  of  Supply 

the  times.  England  has  already  formed  some 
large  combinations  of  interest,  as,  for  instance, 
the  enormous  Vickers  organization. 

The  American  individuality — or  perhaps  it 
is  rather  because  we  have  not  yet  had  a  real 
economic  blow — has  regarded  the  formation  of 
large  corporations  as  financial  rather  than  as 
economic  achievements.  But  the  necessity  for 
closer  cooperation  and  closer  control  is  becom- 
ing evident  and,  as  one  would  naturally  expect, 
in  those  industries  which  were  hardest  hit  by 
reconstruction.  The  trade  association  can  be, 
in  its  fullest  development,  an  instrument  which 
will  permit  the  manufacturer  of  competitive 
articles  made  by  repetitive  process  but  who  is 
not  large  enough  to  go  the  whole  distance  alone 
and  who  does  not  desire  to  lose  his  identity, 
the  opportunity  to  compete  with  the  big  corpo- 
ration. 

The  trade  association  may,  of  course,  be  used 
for  other  purposes.  It  may  become  an  entirely 
evil  organization  to  hold  up  prices.  It  may 
pass  over  the  economic  facts  of  existence  and 
through  stupid  leadership  convince  its  mem- 
bers that  the  way  to  get  more  is  to  do  less,  and 
it  may  combine  with  labor  in  a  vast  buccaneer- 
ing program — an  example  of  which  was  fur- 
nished by  the  building  trades  of  New  York. 

245 


The  Organization  of  Modern  Business 

There  is,  however,  no  cure  for  the  economic 
idiot.  He  has  to  be  permitted  to  bump  himself 
and  after  half  a  dozen  bumps,  if  he  is  not  dead, 
he  is  cured. 

On  the  other  hand  the  trade  association  can 
organize  itself  sectionally  so  as  to  preserve  and 
increase  the  business  of  its  members  and  to 
attain  something  approaching  the  even  flow  of 
trade  that  I  have  described. 

Such  an  association  is  that  of  the  Interna- 
tional Association  of  Garment  Manufacturers. 
It  has  not  gone  the  whole  distance  but  is  on 
its  way.  Another  example  may  be  found  in  the 
organization  of  the  Cleveland  Garment  Manu- 
facturers, where  the  employers  and  employees 
combined  not  to  raise  prices  or  raise  wages  or 
to  raise  anything.  They  reached  a  working 
agreement  to  the  end  that  all  might  do  busi- 
ness scientifically  and  with  a  full  play  of  intel- 
ligent individual  initiative.  I  have  already 
described  that  work  in  a  previous  pamphlet. 
To  date  it  has  been  very  successful — and  the 
members  are  learning  with  each  day. 

But  these  associations  started  their  work,  as 
is  proper,  at  the  point  nearest  home.  They 
started  with  their  own  methods  of  workman- 
ship and  with  their  own  costs  in  cooperative 

246 


Controlling  Your  Sources  of  Supply 

effort  with  their  employees.  When  a  worker 
becomes  a  part  of  industry  through  participa- 
tion in  costs  and  thus  has  a  full  knowledge  of 
operations  there  is  no  room  for  the  economic 
illusionist.  The  object  of  both  associations  is 
first  to  make  the  most  of  what  they  have  and 
then  to  go  forward  with  such  other  steps  as 
may  be  necessary  on  the  outside  to  take  and 
keep  full  advantage  of  what  they  have  devel- 
oped. 

They  are  only  in  a  stage  of  development  as 
are  also  the  Sanitary  Potters'  Association  and 
the  Knit  Goods  Manufacturers  of  America — 
and  I  mention  all  of  them  because  they  are  as- 
sociations in  which  my  firm  has  been  in  charge 
of  the  work  and  is  carefully  directing  cost  and 
planning  operations  so  that  eventually  the 
larger  ends  may  be  realized. 

The  work  in  none  of  these  associations  even 
approaches  the  ideal — the  members  must  make 
a  living  on  the  way.  In  not  all  cases  has  the 
cooperation  of  the  employees  been  had.  That, 
too,  is  a  matter  of  time.  Economic  knowledge 
is  something  of  a  century  plant.  But  the  mem- 
bers of  these  associations  as  individuals  are 
going  through  exactly  the  same  process  of  co- 
operative organization  on  the  basis  of  produo- 

247 


The  Organization  of  Modern  Business 

tive  work  that  the  best  type  of  large  corpora- 
tion goes  through  by  the  consolidation  of  units. 
They  are  preparing  to  make  themselves  an  eco- 
nomic power  that  can  render  service — at  a 
profit  to  all. 


248 


CHAPTER  XH 

THE  ESSENTIALS  OF  A  SOUND  BUSINESS 

THAT  which  we  have  been  trying  to  set  out  is 
that  a  business  unit  is  a  tool — that  its  work  is 
most  effective  when  it  is  a  highly  specialized 
tool.  But  that  this  tool  must  be  most  skilfully 
used  if  it  is  to  be  effective.  And  that  all  the 
parts  of  the  business  are  parts  of  this  tool. 

Most  business  disorders,  most  depressions 
(and  also  most  highly  speculative  periods) 
have  their  origin  in  the  less  than  proper  con- 
duct of  the  business  unit.  A  deal  of  that  for 
which  outside  and  uncontrollable  forces  are 
blamed  are  only  the  results  of  bad  business 
management — of  failing  to  visualize  a  business 
as  a  whole  and  of  failing  to  get  something  of  a 
perspective  on  all  business. 

If  we  could  consider  business  only  as  finance, 
or  as  labor,  or  as  distribution,  or  as  salesman- 
ship, it  would  not  be  hard  to  have  good  busi- 
ness, for  any  one  of  these  phases  can  with  a 
little  care  be  brought  to  a  considerable  degree 
of  perfection. 

249 


The  Organization  of  Modern  Business 

It  is  quite  easy  to  go  into  a  business  and 
point  out  just  what  is  wrong.  Almost  any  man 
of  average  intelligence  and  with  an  average 
flow  of  language  can  put  down  on  a  card  some 
set  of  principles  governing  production,  or  labor 
management,  or  salesmanship,  and,  examining 
a  business  according  to  his  card,  can  shortly 
inform  the  proprietor  exactly  how  the  produc- 
tion or  the  labor  management  or  the  salesman- 
ship can  be  considerably  improved.  If  given  a 
free  hand  and  paid  a  fee  he  will  make  the  im- 
provement and  the  proprietor  can  then  an- 
nounce to  his  friends  that  he  has  a  splendid 
production  department,  or  a  perfectly-managed 
labor  force,  or  a  highly-geared,  rapidly- 
maneuvering  sales  force — and  he  can  be  proud. 
Any  man  who  studies  the  best  practises  in  any 
particular  branch  of  business  can  make  him- 
self a  specialist  of  real  value  and,  for  the  time 
being,  earn  an  entirely  respectable  competency. 

For  instance,  a  good  production  engineer  is 
all-valuable  when  orders  are  away  ahead  of 
production;  and  considering  business  merely 
as  a  producer  of  goods,  the  engineer  can  make 
the  business  remarka/bly  productive.  If  there 
is  trouble  with  labor,  then  almost  any  diplo- 
matic man  can  settle  the  labor  end. 

Go  through  all  of  the  various  branches  of 
250 


The  Essentials  of  a  Sound  Business 

business  and  if  the  pressing  need  of  the  mo- 
ment is  for  perfection  in  one  branch  or  another 
that  need  can  be  approximately  met.  A  prac- 
tising industrial  engineer  is  regarded  as  a  doc- 
tor and  he  is  called  in  only  in  an  emergency 
and  then  to  cure  a  specific  illness.  Or,  to  put 
it  another  way,  he  is  asked  to  build  up  some 
weak  part  of  the  business  body.  The  business 
may  have  an  uncomfortable  stiffening  of  the 
joints  and  it  may  be  that  this  stiffening  is  not 
due  to  some  local  trouble  but  is  traceable  to  a 
number  of  blind  abscesses  to  remove  which  will 
require  an  operation.  The  engineer  will  rarely 
be  permitted  to  operate — he  will  be  forced  to 
content  himself  with  a  purely  temporary  local 
application  and  will  leave,  knowing  that  the 
trouble  is  bound  to  recur  unless  its  actual  cause 
is  removed.  Or  again  he  may  be  asked  to  build 
up  a  weakness.  He  is  not  asked  to  make  the 
whole  body  normal ;  he  is  expected  to  prescribe 
exercise,  let  us  say,  for  the  chest  and  if  he  does 
his  work  thoroughly,  the  business  will  have  a 
Sandow-like  chest  but  the  legs,  not  having  been 
included  in  the  order,  remain  grotesque  and 
tottering  spindles. 

Now  all  of  this  is  very  unsatisfactory  to  an 
industrial  engineer  taking  the  larger  view  of 
business.  It  is  infinitely  more  satisfying  to 

251 


The  Organization  of  Modern  Business 

treat  these  diseases  not  as  such  but  as  the  re- 
sults of  fundamental  disorders  and  then  to 
organize  the  business  unit  to  prevent  their  re- 
currence. A  good  deal  of  progress  is  being 
made  in  the  way  of  preventive  medicine,  but 
unfortunately  very  little  progress  is  being 
made  in  the  direction  of  business-building  as 
opposed  to  business-curing  and  the  reason  for 
this  is  understandable. 

That  which  we  loosely  call  a  business  is  an 
economic  process  and,  whether  we  know  it  or 
not,  is  permanently  successful  in  the  degree 
that  it  serves  society.  But  hardly  any  one  ever 
enters  business  for  the  sole  purpose  of  serving 
society — which  is  peculiarly  fortunate,  for  the 
altruists  in  business  are  ever  so  much  more  of 
a  nuisance  than  the  sordid  money  grabbers. 
The  altruists  spend  all  their  time  studying 
the  map  of  perfection  and  get  nowhere  while 
the  baser  souls  see  something  on  the  next  street 
and  go  to  it.  A  man  is  properly  in  business  to 
make  money  and  he  is  entirely  right  in  insist- 
ing on  being  thoroughly  shown  that  business, 
considered  as  a  service,  is  more  permanently 
remunerative  than  business  considered  as  a 
haphazard  array  of  opportunities.  Hence  he 
wants  to  be  fixed  up  for  his  opportunities — 
not  for  service.  He  has  not  been  shown  that. 

252 


The  Essentials  of  a  Sound  Business 

It  has  been  the  purpose  of  this  book  to  do 
something  toward  making  the  larger  demon- 
stration. 

Let  us,  therefore,  consider  these  principles 
as  starting  points: 

(1)  The   object   of  industry  is   to  produce 
goods  and  not  money.     Money  will,  however, 
result  from  the  proper  production  of  goods  and 
in  a  quantity  in  proportion  to  the  service  ren- 
dered.    This  presupposes  of  course  a  money 
which  is  a  medium  of  exchange  and  which  rep- 
resents value. 

(2)  The  capitalistic  system  with  intelligent 
private  ownership  will  bring  a  larger  measure 
of  social  justice  than  any  system  which  has  yet 
been  proposed  and  it  can  provide  for  giving  to 
each  what  he  deserves. 

(3)  Human  nature  is  essentially  selfish  and 
will  remain  so.    Any  theory  of  economics  which 
begins  with  the  changing  of  human  nature  must 
fail  and  in  practise  will  bring  about  continu- 
ously worse  instead  of  continuously  better  con- 
ditions.   A  successful  practise  must  begin  with 
enlightening — not  destroying — self  interest. 

(4)  A    socialization   of   industry,    although 
theoretically  perfect,  neglects  the  human  equa- 
tion and  the  force  of  leadership.     It  presup- 
poses either  an  automatic  functioning  of  in- 

253 


The  Organization  of  Modern  Business 

dustry  or  the  direction  of  industry  by  super- 
men. There  is  nothing  automatic  about  indus- 
try and  there  are  no  supermen.  We  cannot  fill 
a  vacuum  by  willing  it  to  be  filled.  This  is  the 
sustaining  theory  of  impersonal  production  for 
use. 

(5)  The  numerous  and  easily-catalogued  in- 
equalities which  are  present  in  our  system 
spring  from  defects  of  the  system.  They  arise 
from  a  wholly  natural  misuse  of  the  system. 
By  breaking  down  our  present  system  we  can 
certainly  get  less  than  we  now  have.  By  im- 
proving it  we  can  certainly  get  more. 

No  man  is  simply  in  business.  He  is, 
whether  or  not  he  knows  it,  a  part  of  a  great 
big  machine.  If  that  machine  stops,  he  stops. 
The  mere  declaration  by  a  man  that  he  does 
not  care  what  happens  to  any  one  else  so  long 
as  he  "gets  his"  does  not  make  his  statement 
true  and  neither  does  it  get  him  "his."  A 
farmer  may  declare  and  may  organize  himself 
with  his  fellows  to  obtain  $5  wheat  and  he  may 
get  $5  wheat,  but  if  he  does  he  will  not  get 
$3  shoes  or  $15  suits.  It  is  hard,  if  not  impos- 
sible, to  realize  our  complete  interdependence 
and  perhaps  it  is  just  as  well  that  we  should 
not  think  too  much  about  it,  for  then  we  get  to 

254 


The  Essentials  of  a  Sound  Business 

monkeying  with  the  business  of  others  instead 
of  looking  after  our  own  business. 

Since  the  whole  is  made  up  of  many  parts  we 
can  make  a  wholesome  if  not  a  spectacular  con- 
tribution to  the  general  welfare  by  putting  our 
own  personal  houses  in  the  best  possible  order. 
And  the  nice  part  of  this  is  that  instead  of  hav- 
ing to  hang  around  for  posterity  to  give  us  our 
just  reward  we  can  get  it  right  now  and  in  such 
shape  that  we  can  draw  on  it  in  the  bank.  That 
is  why  John  Smith  can  well  find  an  interest  in 
our  social  structure. 

Summing  up,  let  us  see  if  we  can  discover 
what  is  a  good  business  and  how  it  can  be 
organized. 

I.  A  unit  of  business  is  a  tool  with  which  to 
do  a  certain  job.  We  have  been  fooling  along 
manufacturing  for  money  when  really  we  must 
manufacture  for  service.  The  best  business  is 
that  which  in  its  various  sections  is  so  exactly 
coordinated  that  it  can,  quite  without  waste, 
render  the  service  for  which  it  is  designed. 
Salesmanship,  then,  becomes  primarily  the 
making  of  an  article  that  people  want  at  a 
price  that  they  will  pay,  and  secondarily  the 
demonstration  of  these  facts  to  the  possible 
purchaser.  Service  in  the  sense  in  which  I  use 

255 


The  Organization  of  Modern  Business 

it  means  giving  the  best  possible  article  to  the 
community  at  the  fairest  possible  price  and  at 
the  same  time  adequately  paying  labor  and  a 
properly  apportioned  profit.  A  low  price  to 
the  public,  a  fair  wage  to  the  workers,  and  a 
fair  profit  to  the  owners  are  complementary 
factors  and  will  be  in  entire  complement  when 
business  is  properly  adjusted  to  perform  its 
function.  This  adjustment  can  be  made  only 
through  skilled  planning.  The  man  who  has 
thus  coordinated  to  produce  values  is  the  man 
who  will  stay  longest  in  and  make  the  most  out 
of  business. 

II.  In  order  to  give  the  highest  service  the 
production  must  not  only  be  of  a  standardized 
product  made  through  repetitive  process  but 
the  production  must  be  as  nearly  as  possible 
continuous.  The  plant  is  a  tool  and  the  ma- 
chinery should  be  so  nicely  adjusted  to  a  cer- 
tain kind  of  work  that  even  a  comparatively 
slight  change  in  operations  will  destroy  the 
profit  for  the  time  being.  In  the  highest  type 
of  modern  production  one  cannot  first  sell  and 
then  make,  but  one  must  so  coordinate  the  mak- 
ing and  selling  as  to  form  a  production  scheme 
for  the  establishment.  This  is  the  gospel  of 
volume  production  and  it  determines  the  kind 
of  machinery,  the  kind  of  labor  employed,  the 

256 


The  Essentials  of  a  Sound  Business 

planning  and  location  of  the  building,  and  every 
other  feature  of  importance. 

Naturally  the  most  efficient  tool  is  one  espe- 
cially made  and  adjusted  for  the  work  in  hand. 
The  most  efficient  worker  is  one  who  masters 
all  of  one  subject  or  operation.  This  coordina- 
tion and  application  result  in  low  unit  costs — 
but  only  if  kept  employed.  They  must  not  only 
be  kept  continuously  employed  but  employed  at 
the  work  for  which  they  are  best  suited. 

The  natural  progress  of  industry  makes  im- 
possible the  intermittent  work  which  is  at  the 
very  root  of  the  objections  to  that  capitalistic 
scheme  of  affairs  under  which  we  live.  The 
owner  cannot  generally  make  and  then  hold  for 
a  price  because  by  the  time  he  has  sold  off  his 
stock  the  interest  charges  and  depreciation 
upon  the  plant  have  combined  to  eat  up  more 
than  the  profit  he  hoped  to  get. 

Thus  it  is  to  the  common  advantage  of  the 
worker  and  the  owner  to  keep  the  plant  in 
operation.  If  the  capital  which  bought  that 
machine  expects  to  get  a  fair  return  it  must 
get  it  at  the  expense  of  the  worker  and  of  the 
public — taking  the  near  view.  Taking  the  far 
view,  it  gets  it  at  its  own  expense.  The  worker 
who  receives  less  than  a  full  wage  has  a  de- 
creased buying  power.  The  public  that  gets 

257 


The  Organization  of  Modern  Business 

an  article  at  a  high  price  cannot  buy  much  of 
it  and  it  must  pass  the  higher  price  around  the 
circle  and  thus  eventually  rob  the  capitalist's 
money  of  a  part  of  its  buying  power.  The  use 
of  automatic  machinery,  the  sub-division  of 
labor,  and  the  application  of  power  are  only 
narrowly  to  be  regarded  as  manifestations  of 
ingenuity.  In  their  larger  view  they  are  parts 
of  a  social  development  in  the  way  of  making 
.  more  things  with  fewer  men.  They  are  part 
of  the  transition  of  the  man  from  the  purely 
beast  stage  into  the  higher  levels  and  there 
can  be  no  stopping  the  progress — even  if  any 
one  were  so  thick-headed  as  to  desire  to  stop 
the  progress. 

III.  The  plant  itself — that  is,  the  structure 
of  the  building,  its  location,  and  all  that  con- 
cerns it,  partake  also  of  the  tool  idea  and  are, 
whenever  possible,  to  be  designed  exclusively 
for  the  work  in  hand.  This  is  the  ideal;  it  is 
seldom  possible  of  realization  because  a  busi- 
ness does  not  begin  life  as  an  adult  but  subse- 
quent arrangements  are  determined  by  the  ap- 
proach to  this  ideal  with  the  thought  ever  in 
mind  that  modern  business  puts  into  plant  and 
equipment  the  smallest  sum  possible  per  unit 
of  production. 

Note  that  I  say  unit  of  production,  for  other- 

253 


The  Essentials  of  a  Sound  Business 

wise  the  impression  might  be  gained  that  I 
advocate  a  penny-wise  and  pound-foolish 
policy.  Quite  the  reverse;  it  may  be  greater 
economy  to  spend  a  million  dollars  than  ten 
thousand  dollars,  for  with  the  larger  sum  the 
unit  cost  may  be  reduced.  The  point  is  that 
each  expenditure  is  but  the  part  of  a  whole  and 
should  not  be  made  until  conclusive  testimony 
is  in  hand  that  only  by  spending  can  the  addi- 
tional output  be  had  in  an  economical  way. 
And  the  only  manner  in  which  to  obtain  that 
conclusive  testimony  is  by  so  aligning  the  plant 
with  production  as  to  make  sure  that  it  will  be 
a  surely  cutting  tool. 

IV.  Philanthropy  has  no  place  in  business, 
and  prices,  wages,  or  profits  are  not  to  be  con- 
sidered in  the  light  of  being  fair  or  unfair. 
High  prices  may  or  may  not  be  immoral;  low 
prices  may  or  may  not  be  immoral.  We 
do  not  have  to  decide  these  points.  The  only 
point  necessary  for  decision  is  what  is  good 
business!  A  plant  will  not  be  idle  if  its  product 
is  put  within  the  reach  of  almost  everybody. 
The  wants  of  man  are  infinite.  It  is  up  to  the 
man  who  desires  to  supply  some  of  those  wants 
to  put  his  article  on  the  market  at  such  a  price 
that  it  may  be  bought  by  a  constantly  increas- 
ing number  of  people. 

259 


The  Organization  of  Modern  Business 

From  the  owner's  standpoint  it  is  not  the 
percentage  of  profit  per  sale  that  counts  but 
the  annual  profit,  and  it  is  growing  increas- 
ingly evident  that  the  business  which  has  a 
large  annual  profit  on  a  comparatively  small 
number  of  sales  or  turnovers  of  capital  at  a 
large  margin  per  sale  is  not  nearly  so  stable 
as  the  business  which  gains  a  large  annual 
profit  by  a  great  number  of  turnovers  at  a 
small  profit  per  turn. 

The  premiums  should  go  to  the  man  who  can 
so  turn  capital  as  to  make  the  largest  possible 
percentage  upon  it.  The  whole  trend  of  scien- 
tific business  is  to  make  the  capital  small  in 
proportion  to  the  sales  and  then  make  that 
capital  move  rapidly.  The  capital  may  have  to 
be  large — for  the  best  business  is  done  with  the 
best  facilities  and  these  cost  money — but  in  re- 
lation to  the  sales  the  capital  should  be  as 
small  as  possible.  For  the  profit  upon  the 
capital  as  evidenced,  say,  by  dividends,  is  a 
matter  of  circumstances.  The  profit  on  the 
capital  is  never  to  be  reckoned  as  the  whole 
sum  made  by  subtracting  the  outgo  from  the 
income.  For  in  such  a  case  one  would  jeopard- 
ize the  capital  for  the  sake  of  the  profit— 
which  is  hardly  business.  Profit  is  money  that 

260 


The  Essentials  of  a  Sound  Business 

can  safely  be  taken  out  of  the  business — it  is 
not  a  surplus  to  be  gained  only  by  liquidation. 

V.  Price  and  quality,  considered  together, 
form  the  real  manufacturing  problem.  You 
can  put  cheap  materials  and  cheap  labor 
through  ill-suited  machinery,  turn  out  a  poor 
product  and  sell  it  at  a  low  price.  There  is 
no  permanency  in  that  sort  of  business.  The 
real  business  comes  from  putting  the  very  best 
materials  through  exactly  fitted  machinery 
managed  by  skilful  labor  so  that  an  absolutely 
first-class  article  will  go  through  at  a  minimum 
cost.  Then  only  can  you  sell  a  good  thing  at  a 
low  price,  make  a  fair  profit,  and  establish  a 
solid  trade. 

In  this  high  development  the  plant  becomes 
a  tool  and  the  sales  force  that  once  just  went 
out  and  sold  has  to  sell  what  that  tool  can 
make,  and  that  only.  When  you  have  acquired 
that  tool  you  will  know  how  to  fix  costs.  You 
will  not  be  up  against  the  usual  costing  prob- 
lem of  finding  out  how  much  time  and  money 
it  takes  to  file  down  a  thousand  castings.  You 
will  have  a  machine  that  will  do  that  work. 
This  machine  will  not  merely  be  a  machine ;  it 
will  be  a  tool  for  that  particular  job.  If  a 
workman  has  a  thousand  pieces  to  gage  he  will 

261 


The  Organization  of  Modern  Business 

9o  them  more  quickly  with  a  fixed  gage  than 
with  a  variable  one,  and  it  is  exactly  the  same 
with  the  plant  and  every  portion  of  it. 

The  point  that  I  want  to  make  is  that  real 
efficiency  is  not  to  be  attained  by  scattering 
but  by  concentrating  on  a  single  product,  and 
then  it  is  up  to  the  management  to  see  that 
they  cash  in  on  the  tool  they  have  designed. 
This  rigidity  of  plant  will  in  time  become  so 
marked  that  the  executives  will  no  more  think 
of  taking  on  a  dissimilar  line  to  keep  the  plant 
going  than  the  manager  of  a  foundry  would 
think  of  accepting  a  large  order  for  fancy  sew- 
ing. If  the  salesmen  find  that  they  can  dispose 
of  a  new  line,  or  if  the  advertising  and  expe- 
rience of  the  company  point  out  profitable  side- 
lines, then  the  question  to  be  decided  will  be 
whether  these  new  articles  had  not  best  be 
manufactured  by  a  new  unit.  The  modern 
plant  producing  at  a  high  rate  and  a  low  cost 
cannot  do  odd  jobs;  it  is  a  fixed  instrument 
which  can  be  readjusted  only  with  difficulty. 

Thus  we  find  that  selling  is  not  one  depart- 
ment and  making  another,  but  that  the  two 
have  to  work  in  the  very  closest  harmony  if 
that  good  business  is  to  be  attained  which  is 
a  service  to  the  public  and  which  consists  of 
low  prices  and  high  profits.  There  is  no  other 

262 


The  Essentials  of  a  Sound  Business 

way.  The  new  selling  and  the  new  advertising 
sell  the  produce  of  a  tool  and  not  simply  a 
product. 

VI.  It  ought  to  be  evident  that  an  industrial 
plant  is  only  an  inconveniently  sorted  mass  of 
junk  unless  some  one  is  around  to  see  that  the 
bricks,  mortar,  and  machinery  become  tools  of 
production.  Up  to  date  we  have  not  been  able 
to  erect  anything  in  the  way  of  a  gentle  and 
obedient  Frankenstein  monster  that  quite  un- 
tended  would  rattle  its  fabricated  bones  for  the 
benefit  of  its  fabricator. 

To  put  the  matter  more  concretely,  an  indus- 
trial adventure  needs  the  services  of  human 
beings.  Or  looking  at  it  from  another  angle, 
an  industrial  organization  exists  only  because 
it  serves — not  that  it  may  serve — human  be- 
ings; in  order  to  perform  that  service  it  re- 
quires a  certain  service  from  other  human 
beings. 

A  lack  of  recognition  of  the  fact  that  really 
we  are  all  engaged  in  service,  however  much 
some  of  us  at  times  would  like  to  think  we  are 
principally  engaged  in  being  served,  is  back  of 
a  good  deal  of  the  misconception  of  the  relation 
of  the  human  element  in  business.  When  we 
speak  of  the  human  element  we  are  apt  to  think 
only  of  the  men  who  work  for  wages  and  of 

263 


The  Organization  of  Modern  Business 

their  pay.  This  gets  us  into  trouble  right  at 
the  outset,  for  although  executives  and  manag- 
ing directors  do  not  commonly  strike  and 
march  around  the  place  bearing  placards,  they 
are  just  as  much  a  part  of  the  problem  of  the 
human  element  in  industry  as  are  those  men 
who  work  strictly  for  wages.  For  where  the 
wage  earners  are  chronically  dissatisfied  and 
sullen  you  will  nearly  always  discover  that  the 
executives  do  not  know  their  jobs  any  too  well. 

VII.  The  organization  of  the  human  element 
is  possibly  the  largest  part  of  the  whole  organi- 
zation of  business.  But  it  is  only  a  part  and  it 
is  not  the  whole ;  also  it  is  something  different 
from  what  we  call  the  labor  problem.  For  it 
comprehends  both  those  who  work  with  their 
hands  and  those  who  work  with  their  heads— 
those  who  fabricate  and  those  who  direct — the 
worker,  the  technician  and  the  executive. 

One  thing,  however,  we  have  learned.  It  is 
this:  While  the  restriction  of  production  at 
an  appropriate  moment  may  bring  advantage 
either  to  the  employer  who  shuts  down  to  sell 
off  his  stock  at  a  high  price,  or  to  the  employee 
who  makes  a  group  demand  for  increased 
wages  at  a  moment  when  large  production 
offers  a  big  profit  to  the  employer,  yet  in  the 
end  neither  side  really  benefits.  The  perma- 

264 


The  Essentials  of  a  Sound  Business 

nent  benefits  come  from  an  always  larger  and 
larger  production  at  a  decreasing  cost — that  is, 
with  a  minimum  of  waste.  It  is  the  part  of 
industrial  engineering  to  teach  this  latter  truth 
through  putting  theory  into  practise. 

The  well-being  of  any  particular  industrial 
institution  depends  upon  how  well  it  produces 
and  thereafter  sells.  Therefore  any  labor 
policy  which  attempts  to  consider  labor  as 
apart  from  production,  as  a  commodity,  is 
bound  to  fail.  One  of  the  troubles  with  the 
average  trades  union  is  that  while  declaiming 
that  labor  is  not  a  commodity,  it  insists  that 
the  service  of  men  should  be  bought  in  bulk  and 
at  a  market  price  fixed  by  the  union.  That  is, 
the  union  really  insists  that  labor  be  consid- 
ered as  a  commodity  and  have  its  price  fixed. 

I  am  inclined  to  view  the  whole  question  of 
unionism  as  one  dependent  wholly  upon  the 
circumstances.  Any  individual  case  can  be 
decided  by  putting  down  what  the  business 
wants  to  be  and  then  endeavoring  to  discover 
whether  its  legitimate  objects,  which  include 
the  good  of  all  concerned,  can  best  be  achieved 
by  an  agreement  with  a  union,  by  an  agreement 
with  the  employees,  or  by  proceeding  under  no 
agreement  whatsoever. 

VIII.   An  organization  is  nothing  of  itself. 

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The  Organization  of  Modern  Business 

When  one  speaks  of  the  automatic,  smooth- 
running  machinery  of  Big  Business,  one  is 
talking  nonsense.  The  wheels  do  not  go 
around  of  themselves — they  must  be  propelled 
by  leadership.  There  is  more  danger,  we  are 
just  beginning  to  realize,  from  over-organiza- 
tion than  from  under-organization  because  the 
former  discourages  leadership. 

System  up  to  a  point  facilitates  operation,  it 
takes  the  conscious  effort  out  of  small  move- 
ments and  liberates  the  mind  for  larger  affairs, 
but  carried  beyond  that  point  there  is  a  likeli- 
hood that  while  conserving  it  will  be  wasting. 

IX.  Most  of  the  dangers  in  business  finance 
arise  out  of  putting  the  speculative  side  above 
the  fabricating  or  merchandising.  It  is  just  as 
dangerous  for  a  corporation  to  speculate  in 
goods  as  to  speculate  in  the  stock  market;  in 
many  ways  it  is  more  dangerous  because  very 
few  staple  markets  are  nearly  so  well  organized 
as  is  the  stock  market  and  hence  one  cannot 
often  get  so  quickly  out  of  goods  as  out  of 
stocks. 

The  first  policy,  therefore,  to  be  determined 
in  any  business  institution  is  whether  the 
strictly  business  or  the  strictly  speculative  fea- 
ture shall  dominate. 

The  mixing   of  manufacturing   and   selling 

266 


The  Essentials  of  a  Sound  Business 

with  speculation  is  the  greatest  of  all  deter- 
rents to  sound  business  practise  and  organiza- 
tion. It  is  the  function  of  a  manufacturer  to 
manufacture,  of  a  merchandiser  to  merchan- 
dise. They  should  look  for  their  recompense 
in  the  results  of  the  skill  with  which  they  per- 
form their  functions.  Their  profits  per  dollar 
must  necessarily  be  small — and  arduously 
earned.  It  is  hard  for  men  pursuing  this  con- 
servative course  to  see  others  come  into  the 
market  and,  without  manufacturing  or  mer- 
chandising skill,  clear  stupendous  profits 
merely  by  buying  low  and  selling  high.  If  a 
market  during  a  considerable  period  continues 
to  rise  one  will  find  very  few  business  men  who 
are  able  to  keep  their  heads  and  to  remember 
that  a  day  of  reckoning  is  inevitable.  Almost 
without  exception  they  will  cast  aside  the  prin- 
ciples upon  which  they  built  business  and  en- 
gage in  a  mad  scramble  of  speculation. 

We  can  borrow  to  finance  operations  but  bor- 
rowing to  meet  depletions  of  capital  or  for  any 
capital  purpose  holds  within  itself  the  highest 
danger  for  we  may  thereby  begin  that  endless 
chain  system  of  finance  that  must  end  in  abso- 
lute ruin. 

X.  The  end  of  planning  is  not  the  installa- 
tion of  chaste,  metal  fixtures  filled  with  neatly 

267 


The  Organization  of  Modern  Business 

lettered  cards.  The  end  of  planning  is  so  to 
shape  the  manufacturing,  selling,  and  financial 
portions  of  a  business  that  all  will  function 
perfectly  together,  and  the  business  cycle  of 
that  particular  institution  revolve  with  sweep- 
ing grace. 

An  unplanned  business  may  be  said  to  lack 
orchestration.  No  matter  how  individually 
skilled  the  members  of  an  orchestra  may  be, 
their  efforts  will  go  to  make  business  only  for 
the  undertaker  unless  some  one  has  reasonably 
adapted  the  score  to  the  instruments.  Other- 
wise they  will  not  make  music  but  mly  a  fright- 
ful noise. 

It  is  the  part  of  management  to  manage.  It 
is  the  part  of  science  to  overcome  difficulties. 
Anybody  can  accept  things  as  they  are.  Un- 
scientific business — that  is,  unplanned  business 
— accepts  things  as  they  are.  The  unscientific 
business  man  accepts  good  times  with  perhaps 
a  tendency  to  give  full  credit  to  himself  for 
bringing  them  on,  but  anyhow  he  is  glad.  Also 
and  eventually  he  accepts  bad  times  as  an  ex- 
cuse for  lack  of  forethought  and  he  is  sorry. 

Keep  down  the  fixed  investments  to  the  low- 
est possible  point.  Keep  a  large  and  instantly 
available  reserve  func*  in  cash  or  convertible 


The  Essentials  of  a  Sound  Business 

securities,  and  regulate  your  buying  so  that 
you  will  not  buy  beyond  the  ability  of  the 
money  that  you  have  in  hand  satisfactorily  to 
margin  your  stock  if  the  market  takes  a  set 
against  you.  It  is  possible  in  straight  manu- 
facturing or  selling  to  get  along  on  a  shoe- 
string but  successful  speculation  requires  a  lot 
of  money,  and  it  is  suicidal  for  any  man  not  in 
the  capitalist  class  to  attempt  to  speculate  in 
commodities. 

We  have  already  decided  that  we  shall  not 
speculate — that  we  shall  buy  only  what  we 
need  and  in  such  time  that  it  will  be  on  hand 
exactly  when  we  need  it.  In  merchandising  the 
amounts  of  these  purchases  will  be  guided  by 
the  sales  that  we  determine  to  make.  We  have 
here  to  do  more  largely  with  manufacturing; 
merchandising  is  guided  by  a  few  general  prin- 
ciples and  a  multitude  of  detailed  applications. 

Manufacturing  may  be  of  three  kinds : 

(1)  Job  work  in  which  each  order  is  special 
and   only   a   comparatively    small   amount   is 
made  on  order. 

(2)  The  continuous  repetitive  production  of 
a  single  type  of  article. 

(3)  Quantity  production  to  the  customer's 
order. 

269 


The  Organization  of  Modern  Business 

The  second  of  these  three  types  of  manufac- 
turing is  the  most  economical,  for  the  patent 
reason  that  if  we  do  only  one  thing  we  can  so 
regulate  our  tools  and  our  progress  of  work 
as  to  do  each  operation  in  the  best  possible  way. 

XI.  The  principle  that  a  manufacturer  shall 
contribute  a  service  and  simply  add  the  cost 
of  that  service  to  the  value  of  the  raw  material, 
thus  keeping  his  prices  consonant  with  the  buy- 
ing power  of  the  public,  will  have  little  force 
if  somewhere  in  the  processes  before  him  or  in 
the  processes  after  him,  the  speculative  ele- 
ment so  controls  the  situation  that  he  cannot 
function  on  schedule. 

The  small  corporation  is  uncommonly  useful 
and  forms  a  necessary  part  of  our  life  but  it 
cannot  exist  in  competition  with  the  large  cor- 
poration and  there  is  no  reason  that  it  should. 

So  while  there  is  no  place  for  the  small  com- 
pany in  the  manufacture  of  standardized  arti- 
cles there  is  a  very  large  place  for  it  in  the 
making  of  patented  specialties  or  articles 
which  have  certain  of  the  indicia  of  craftsman- 
ship or  which  are  really  craftsmen's  products. 

The  trade  association  can  be,  in  its  fullest 
development,  an  instrument  which  will  permit 
the  manufacturer  of  competitive  articles  made 
by  repetitive  process  but  who  is  not  large 

270 


The  Essentials  of  a  Sound  Business 

enough  to  go  the  whole  distance  alone  and  who 
does  not  desire  to  lose  his  identity,  the  oppor- 
tunity to  compete  with  the  big  corporation. 

There  we  have,  as  I  see  them,  the  principles 
of  sound,  continuing  business. 


THE  END« 


271 


14  DAY  USE 

RETURN  TO  DESK  FROM  WHICH  BORROWED 

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